India: Slow down hits auto sector: Auto industry, companies, demand falls

Automobile companies are slashing growth outlooks and slowing production as demand falls. Car dealerships are facing credit problems and inventory pile ups. The commercial vehicle industry has witnessed a major collapse. Despite the slow down, auto industry chiefs remain optimistic. Companies are implementing innovative practices to control costs.

-Chillibreeze Business Research Team

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Trends

Auto industry chiefs gung-ho on business scope of aftermarket

Auto industry captains are bullish on tapping the fast growing aftermarket business with almost all the global majors having entered India and production of vehicles zooming from 2 million in 1991 to 100 million in 2007 and growing at 12% a year. They said aftermarket will become more organised and branded and emerge as a separate revenue stream for vehicle manufacturers and OEMs (Tier I suppliers) with tremendous opportunities in maintenance, services and selling genuine parts.

Industry leaders said customer expectations are very high and product quality and delivery are taken for granted. Quality of service will be the key differentiator for companies to retain customers. This will call for ensuring service and spare parts at their convenience and at reduced cost.

TVS Motor chairman and managing director and CII vice president Venu Srinivasan, said the contribution of auto industry to GDP is set to grow from 5% currently to 10% by 2016. All the top seven global players are setting up plants in India and Chennai has attracted almost all the top players. More sophisticated vehicles and manufacturing equipments have entered India. It is the largest consumer of chips, plastics, sheet metals besides in extensive computer application. There is tremendous spin-off effect in terms of employment in the growth of Tier II and Tier III suppliers and aftermarket service.

“While there is downturn now and recovery is expected after 18 months, I expect the auto industry to be the true growth engine and lead our growth like in rest of the world. The industry also enjoys the support of all Indian states,” he said.

Mr Srinivasan said in the next two years lot of surplus capacity and equipment will be available along with labour (due to downturn and unemployment). It is the best time for the industry and Government to intensify the training so as to meet the demand for skilled manpower for the aftermarket business. As the business becomes organised, it is equally essential to increase the pool of managerial people for organising capital, managing finance and labour and other resources.

Ashok Leyland wholetime director Vinod Dasari said it has its focus on three Cs: company, customer and channel. Despite the downturn, the company will go ahead with its big expansion plan. It wants to improve the service market share. Nearly 70% of the service is done by people outside the dealer network. It will work with dealers to upgrade their service and increase network.

Brakes India managing director Viji Santhanam said OEMs and vehicle manufacturers have to focus on certain areas for developing the aftermarket business.

These included: infusing a service mindset across the organisation not only among the field staff, having structured inputs from the field staff, prompt attention to address and resolve customer problem, extensive training programme for dealers and field force designing and developing service tools and validating warranty claims.

Hindustan Motors MD Ravi Santhanam said, “Aftermarket sales and service is one element of auto business that is completely recession proof. It helps companies in building brands, gives them a competitive advantage and marginal price advantage, especially for premium products.”

M&M president (HR, aftermarket & corporate services) Rajeev Dubey said: “Aftermarket business will be driven by trust, quality and convenience. M&M is ramping up its First Choice used car business for handling multi-branded models. It will leverage the symbiotic relationship within the group for providing all services including strategic sourcing, logistics and finance.

TV Sundaram Iyengar & Sons joint managing director and Autoserve 08 chairman R Dinesh said irrespective of how technology evolves, aftermarket services plays a crucial role in servicing the end user. A customer might be the owner of a 20 year old vehicle. Though he is not a direct customer, his word of mouth on service is equally important for the company.

This business is emerging a separate revenue stream for companies. But with increasing customer expectations and cost of service and parts, the focus has to be on total cost benefit for the end consumer without the company having to compromise on profit.
November 8, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/Auto_industry_chiefs_gung-ho_on_business_scope_of_aftermarket/articleshow/3687312.cms

Short run outlook negative for auto stocks, futures in discount

The worsening global economic outlook, along with declining demand on domestic front led by high interest rates and fuel prices, has pushed the auto stocks in the reverse gear and stock futures were trading at a significant discount.

Decline in sales shown by all the automotive players is mainly due to the fact that the festive season in FY2008 was in November and hence the sales for October were high, creating a high base.

Even the high interest rates for vehicle financing and liquidity crunch in the market added to the dismal performance of the sector as a whole. Maruti, a passenger vehicle (PV) leader, posted 7.1 per cent yoy decline in volume.

The two-wheeler sector also posted a decline in monthly numbers after an inventory build up before festive season. In the four-wheeler segment, the commercial vehicle segment was the most hit by the prevailing high financing cost.

Volume growth for all segments to remain subdued due to stringent financing norms. Reduction in key rates may prompt banks to cut lending rates but financing for discretionary goods to remain tight.

There is a huge export market that auto players have to tap and that will be volume driver in years to come. Price increase undertaken by companies in previous quarter may be reduced from next fiscal as auto majors may pass on the reduced raw material cost to boost the volumes.
November 7, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/Stock_update_Short_run_outlook_negative_for_auto_stocks_futures_in_discount/articleshow/3684504.cms

MNC carmakers' India plans on slow track

The slowdown is beginning to hit foreign investments in the automobile sector with top MNC vehicle makers in “review” mode. According to the auto industry sources, big-ticket investors like Honda and Volkswagen are reportedly “reviewing” their earlier stated investment plans and production schedules.

Honda Siel, which is putting up a Rs 1,000-crore plant in Rajasthan for the Jazz small car, is now planning to roll it out of its existing Surajpur facility, pushing back the vehicle rollout date from the new plant by 6-12 months due to slowdown in the Indian market. It will also prune its proposed investments and cut back on hiring for the second phase of the new plant, say sources.

Industry sources say even Volkswagen is “going slow” with its greenfield plant in Chakan though company officials denied it. “There is no change in the India plans—in the speed of construction, installation, etc. We expect to launch our first product from the Chakan plant in the first quarter of next year and by the end of 2009, our second product will come off the Pune line. The fact that we have had a stream of top level visitors, including a team from the government of Lower Saxony, means we have to show them progress and shows there is no let up,” a VW India official told.

The government of Lower Saxony holds about 18-20% stake in VW, which is putting up a e580 (about Rs 3500 crore) greenfield plant on a 230-acre plot in Chakan, with the capacity to roll out 1.1 lakh cars annually. In the past, officials have stated that the string of products that will roll out of this plant will mainly be small cars, including Polo by late 2009.

The slowdown has also taken its toll on plants that have already been productionised by pushing back ramp-up schedules. GM India, which has just inaugurated its new plant in Talegaon, is scheduled to add second shift in the next quarter. But, GMI V-P P Balendran says: “It will depend on market conditions.”

Industry experts say the investment scale back is only expected and would have happened sooner but, for the lag between European and American markets and the scenario in India. The drop in orders in India is 15-25% compared to 35-40% in the US and Europe. So far Indian production had held up because of exports, but now exports too are scaling back.
November 7, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/MNC_carmakers_India_plans_on_slow_track/articleshow/msid-3682957,curpg-2.cms

Iron ore slowdown hits automotive sector in Bellary

The fall in the prices of iron ore in the international market has severely affected the automobile sector in Bellary district of Karnataka and the sale of heavy commercial vehicles and cars as a result has drastically come down by 50% and 10% to 25% respectively in the last two months.

Since 2004, people have seen at least a dozen varieties of luxurious cars including Volkswagens, Mercedes Benz, Nissan, Hyundai Sonata and Honda Civic, owned by various mine owners. Later, some of them were even seen with helicopters.

To cater to the increasing demand for swanky cars, several leading car manufacturing companies including Ford, Mahindra, Hyundai, Chevrolet, Toyota and Maruti did not delay in setting up showrooms here. A couple of showrooms came up in Hospet city too.
November 7, 2008
Source: Steel Guru
URL: http://steelguru.com/news/index/2008/11/04/Njk2MDc%3D/Iron_ore_slowdown_hits_automotive_sector_in_Bellary.html

Inventory build-up hurting auto industry’

The auto industry has been caught unawares with high levels of inventory. During the last one month the commercial vehicle industry collapsed by 40 to 50 per cent. This was like tsumani as the intensity of the collapse was not understood early.

In a way the current situation, which is the most difficult financial situation in the world, is useful for the industry as it can learn to optimise resources. Therefore, it is necessary to speed up supply and eliminate inventory. Indian industry cannot be competitive without required infrastructure and in a recession it is necessary to focus on building nfrastructure so as to capitalise on it when the economy rolls back. The average speed truck in the highways has got reduced from over 40 kmph to less than 30 kmph due to lack of segregation of highways. It is necessary to segregate roads besides creating smart highways with more use of electronics and automation.

The incremental cost would be less than 10 per cent for creating smart highways, which can detect vehicles and assess load and allow them to cruise without halting for toll payment, he said. With several companies in the country developing similar systems for overseas applications, it would be conducive for them to develop for local market, “but what we need is the political will.

Tax barriers are as prohibitively expensive as physical barriers. The CST situation has resulted in inefficient operation of automobile manufacturing companies with several regional offices being set up as it was not possible to cater to customers across the country from one State. These fiscal anomalies need to be addressed so that the competitiveness of Indian industry can be reinforced. It is necessary to have rhythmic production system for automobile companies in the shop floor in order to avoid redundancies in terms of capacities. With the current situation it is even necessary to adopt these principles in supply chain also to stay afloat.

Despite slowdown in the economy, the Ministry of Heavy Industries and the Planning Commission have projected that auto sector was poised for a four-fold growth by 2016. While revenue from auto industry will cross $145 billion, the component industry will be $2.3 billion, he said. The contribution from this sector to GDP will be doubled from the current level of 10 per cent. Though the economy seems to be sluggish, the State Government is still getting proposals for investments.
November 7, 2008
Source: The Hindu Business Line
URL: http://www.thehindubusinessline.com/2008/11/07/stories/2008110752240300.htm

Obama victory helps unions, automakers

Barack Obama's victory in the presidential race will give labor unions and the embattled U.S. auto industry a strong ally in the White House, and likely will put pressure on oil and gas producers and pharmaceutical companies.

Obama has promised to help Ford Motor Co., General Motors Corp. and Chrysler LLC by doubling a recently approved loan program to $50 billion to help the auto industry develop more fuel-efficient cars.Oil and gas companies such as Exxon Mobil Corp. and Chevron Corp., however, could face a windfall profits tax, which Obama has promised to impose to pay for a $1,000 "emergency energy rebate" for families.

Also on energy, Obama proposes spending $150 billion over 10 years to speed the development of plug-in hybrid cars and "commercial-scale" renewables, such as wind and solar.
November 5, 2008
Source: NDTV Profit
URL: http://profit.ndtv.com/2008/11/05121106/Obama-victory-helps-unions-au.html

Govt hopeful of turning Kolkata into auto hub of East

Chinese investments in the automobile sector can play a role in developing West Bengal as an automobile hub for eastern India. While Gurgaon, Pune and Chennai have already developed as important automobile manufacturing centres in the north, west and southern India, West Bengal had the potential to become an important auto-destination in the east.

Other areas of investment in the State would be in electronic equipment and hardware manufacturing, infrastructure, chemical and petrochemical, and leather.
November 4, 2008
Source: Sify
URL: http://sify.com/finance/fullstory.php?id=14790211

Bumpy Ride: Tough times ahead for car dealerships

After production cuts and lay-offs in the car industry, it’s now the turn of dealers. Leading auto majors are understood to be tightening control over dealerships and putting expansion plans on hold. According to industry estimates, around 250 out of the 1,400 car dealers across the country are faced with the possibility of shutting shop in the wake of falling sales, high interest rates and lack of finance.

Although the retail offtake for cars in October has been better than September (after about seven months of single digit growth rate), many dealers are still stuck with huge inventory. Dealers are hoping that huge discounts and incentives in the next two months will help reduce stock levels.

Finance companies have also drastically cut down on funding. Dealerships need funds to finance inventory and consumers need funds to buy cars.

Carmakers on their side are adjusting production to demand to avoid stock pile-up at the dealership end. With most of the leading manufacturers having expanded their dealer network when sales were going good are now understood to have told some of the non-profitable dealers to shut down.

The scene has been worse across the globe. Almost 600 of the 20,000 US new-car dealers have reportedly shut down this year, with an additional 2,000 likely to close in the next few months. In the wake of falling sales, UK car manufacturers have introduced stricter standards for dealerships, forcing many to shut shop. Maruti, Tata Motors and M&M are optimistic that new launches, planned for the next few months, would help tide through the slowdown. Some of the dealerships have also ventured into multi-brand retail set-ups.
November 3, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/Bumpy_Ride_Tough_times_ahead_for_car_dealerships/articleshow/3666216.cms

Cars

GM plans to speed-drive on country roads

In a bid to continue high growth in sluggish car market, GM India is now planning to concentrate on the rural market.

The company plans to scale up its market share to 10% in two years from 4% now. GM India MD Karl Slym says: “In the present situation we would be focusing more on rural market and smaller towns. We would aggressively go to East India as we see a substantial potential there.”

Presently, over 50% of the total sales of the company happen in tier I cities. However, the company is believed to be taking initiatives to penetrate in the rural market. According to the company officials, the rural market and smaller towns are not much affected by the present slowdown. In rural areas most buyers prefer to buy cars against cash than to go for car loans.
November 7, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/GM_plans_to_speed-drive_on_country_roads/articleshow/3682960.cms

Slowdown ahead: Tata Motors shuts unit for 3 days

In what could be termed as a clear signal of the slowdown in the automobile sector, Tata Motors will shut its Jamshedpur plant for three days from November 6 to 8. The commercial heavy vehicles major has said in a notice to its 4,500 employees that the unit would remain closed to maintain a demand-supply equilibrium.

The company has seen a slump in demand in recent times as it revised its production output from 225 vehicles per day to 160 vehicles per day. For financial year FY09, the company has reviewed its target of producing 1,03,000 vehicles to 90,000 vehicles, said a source in Tata Motors. Officers would undergo leave without-pay during the period that the plant will remain closed.

In a notice to employees, Tata Motors said that bargainable employees (plant workers, non-officers) would get 50 per cent of their salary during the period of the shutdown while non-bargainable employees (officer level) will not be paid for the 3 days.

Lack of financing for commercial vehicles has affected sales as most of the vehicles are fincnaced by institutions. It has four units -- Jamshedpur, Pune, Lucknow and Uttaranchal. The company's shares fell 4.9 per cent to close at Rs 313.85 at the Bombay Stock Exchange.

Standard & Poor's Ratings Services today affirmed its BB corporate credit rating on Tata Motors Ltd. The rating was lowered in April from BB+ after Tata Motors announced its agreement with Ford Motor Co to purchase Jaguar and Land Rover (JLR).
November 6, 2008
Source: Indian Express
URL: http://www.indianexpress.com/news/Slowdown-ahead--Tata-Motors-shuts-unit-for-3-days/382075

Hyundai scales down sales target as financial crisis grips

Hyundai Motor India, India’s second largest car manufacturer, has started feeling the impact of global financial meltdown, which has hit its distributors. This comes at a time when the company recorded robust sales during January-October 2008 and will be touching the 2 million car production mark this week in its 10 year long India journey.

MD, H S Lheem said, “ We are no exception to the international financial crisis, which has hit our distributors. We are working with them to tide over the problem”.
The company, which doubled its production capacity to six lakh cars, had set a sales target of 6 lakh cars including 2. 7 lakh for exports for 2008. “ Because of the uncertainty, we had scaled it down to 5.3 lakh cars. Now, we expect to close the year with 5.15 lakh cars”.

In 2007, HMIL’s total sales went up by 9.2% to 3, 27, 160 cars of which domestic sales rose by 7.6% to 2 lakh cars and exports 11.8% to 1.26 lakh cars. Company officials said this year, sales did not pick up much during festivals. No big recovery is expected in 2009 though it is gearing up to produce over six lakh cars next year. In India, getting finance has become a problem and the margin on loans has also increased. The company plans to support dealers in advertising and marketing.

The company has done well in the first 10 months of this year with a record sales of 4.07 lakh cars ( Jan-Oct 08), up by 49% over the same period in 2007 . Domestic sales surged by 28% ( against the industry average of 5%) to 2.15 lakh cars and exports by 83% to 1.92 lakh cars. It has no inventory problem with only 22,000 cars stocked at the plant while an equal number will be with its dealers. It is working two shifts and there is no reduction in labour force.

It is working with 100 suppliers ( 45 from Korea) and employees for cost saving and weight reduction. Like i10, Chennai plant will become an export hub for the newly launched i20 for which it has 30,000 orders mainly for shipping to Europe, which accounts for 50% of company’s total exports.

The first consignment has 2820 i20 cars and the balance will be shipped this month and December. In 2009, it plans to export 1.20 lakh i20 cars besides selling 15,000 in the domestic market. The company will retain its focus on small cars ( A and B segments). Asked about the plan for upgrading and re-launching its popular Santro model the R & D team is working on a new model for launch in 2011. It will have less capacity and cost less than Santro.
November 6, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/Hyundai_scales_down_sales_target_as_financial_crisis_grips/articleshow/3678972.cms

Toyota to spend $680 mn for second plant in India

Toyota Motor Corp said it will spend a total of 68 billion yen ($680 million) on a planned second car factory in India scheduled to begin producing a new compact car and the Corolla sedan from 2010.

The Japanese automaker had announced in April an outlay of 35 billion yen for the buildings and basic equipment for the plant. It said in a statement it would spend another 33 billion yen on other equipment necessary to build the low-cost, compact car. Toyota, a minor player in the promising Indian market, has not announced a price range for that car, but it is widely expected to cost about $8,000. The new plant, to be located at its auto production base on the outskirts of Bangalore, will start with initial capacity of 100,000 units a year, bringing Toyota's total annual capacity to 160,000 vehicles.
November 5, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/Toyota_to_spend_680_mn_for_second_plant_in_India/articleshow/3677399.cms

GM to launch 2 new cars by next year

General Motors India, announced that it will be introducing two car models by next year. The new model has been priced at Rs 9.58 lakh (Ex-showroom Chennai.

Out of the two cars one may be in the 'mini-car', while the other in the 'premium sedan' segment. The cars would be manufactured from their Talegaon plant and Halol facility.

They have no plans to phase out the existing model. They are working on the CNG variant of the mini-car 'Spark'. The company also planned to increase its sales points from 145 to 188 and the service outlets to 190 from 148 by the end of 2008, he said.
November 5, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/GM_to_launch_2_new_cars_by_next_year/articleshow/3678586.cms

India Tata Motors' Oct sales down 19.5 pct y/y

Tata 5 commercial vehicles 19,154 27,103 -29.3 passenger vehicles 17,014 18,021 -5.6 exports 3,561 4,230 -15.8 Tata Motors is India's top bus and truck maker and third-biggest car maker. It has a joint venture with Fiat for distribution and manufacture and is expected to launch Nano, the world's cheapest car, in early 2009.
November 3, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/India_Tata_Motors_Oct_sales_down_195_pct_yy/articleshow/3667333.cms

M&M October sales down 18 per cent

Auto major Mahindra & Mahindra reported 17.81 per cent decline in total automotive sales in October at 20,282 units, against 24,679 units in the same month last year.

Domestic sales during the month stood at 19,899 units, against 23,578 units last year, down 15.6 per cent. Exports during the month stood at 383 units, against 1101 units in the same month last year, down 65.21 per cent. Sales of utility vehicles were down by 16.61 per cent at 13,935 units, against 16,711 units in the year-ago period. Three-wheelers sales, however, recorded a growth of 11.62 per cent at 4,282 units, against 3,836 units in the corresponding period previous year.
November 3, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/MM_October_sales_down_18_per_cent/articleshow/3669384.cms

Two Wheelers

Liquidity hopes post-RBI move makes a good case for launch of new models

Despite the slowdown, most of the carmakers appear hopeful as far as launch of new of new two-wheeler and four wheels models in the coming months are concerned. The original expectation of encouraging sales in the stretched out two-month festive season failed to deliver the expected results the auto makers. No doubt, sales did move up for some of them especially for reasons of new variants of older models and some newer versions being released at the dealer windows, but it was nowhere near to bring cheer to the already reeling industry hit by the additional liquidity crunch lately.

The mood seems to have gotten lighter with the current and recent announcement by RBI to boost liquidity in the market place goading banks to lower their lending rates to intending borrowers. Not only the car but the real estate sector may just get some reprieve for the onslaught of higher lending rates and ensuing crunch in liquidity. It is estimated that more than 90 per cent of cars sold in the compact and mid-size segment have the financing component thrown in and this news is attractive for these segments. The segment is typified with the upwardly mobile consumers who are the main buyers of such vehicles. The auto companies anyway, had announced most of the new launches many months back and in the gloomy scenario were wondering on their next course of action, when this recent announcement has put a huge buoyancy in the market, triggering announcements of several launches. For example, leading automakers (both two and four-wheelers) like Tata, Maruti, Fiat, Hyundai, Bajaj Auto, Hero Honda etc are now planning to continue with the launch of their new models. As reported earlier, Maruti will be launching its global car, A-Star, shortly in the domestic market. The car is completely designed in India. It would be followed by another eagerly-awaited hatchback car, Splash, latest by the middle of 2008.
Another auto giant, Hyundai Motor India Limited (HMI) is planning to roll out the i20 model in India by the end of this month. The super-hatch model is understood to be priced higher than i10 and Getz, costing around Rs. 5-6 lakh. The car would be pitted against Skoda Fabia, Suzuki Swift and the upcoming Fiat Grande Punto. The upcoming car, powered by the 1.2 litre Kappa engine, would be making its global debut in India. While Fiat India Pvt. Ltd will offer a sedan called the Linea, Mahindra & Mahindra has announced its plan to unveil the Mahindra XYLO based on its Ingenio Project platform. Skoda also has its Superb, the premium sedan lined up for release.
In order to cash in on the burgeoning demand of two-wheeler products, a number of companies like Hero Honda, Bajaj Auto, HMSI, TVS Motors and Suzuki Motorcycles have lined up a slew of launches in various segments.

After recently launching a 125cc Platina bike, there is another bike to be introduced by Bajaj Auto shortly. Hero Honda will too launch a bike shortly. TVS Motors will launch a scooter as well as an 180cc Apache bike. It has also been learnt that Honda Motorcycle and Scooter India (HMSI), will bring in its fifth scooter in the domestic market. Suzuki Motorcycle and Scooter India will shortly roll out a scooter and a motorcycle in the 125cc segment.

Says an industry leader, these launches could not have been better timed in hindsight, given RBI’s move of slashing interest rates and lifting the consumer sentiment. It needs to be seen that would these really meet the numbers when liquidity returns. It may just be a good news for the industry as the reality is that all the liquidity had just moved out of the system and not vanished as had happened in other economies globally. The industry seems set to bounce back in the next few months. Watch this space how the industry fares!
November 3, 2008
Source: Wheels Unplugged
URL: http://www.wheelsunplugged.com/ViewNews.aspx?newsid=1732

Others

How is motown cutting costs?

No staying back late to finish pending assignments. Planting creepers on factory roofs to cut down on AC bills. Opting for less chrome on big muscle bikes. Motown is getting innovative in its search for cost efficiencies as the recession hits both top line and bottom line in automotive companies.

According to a study by Ernst & Young, companies are looking at a range of out-of-the-box options to skim costs from their bottom lines. Apart from rationalising their supplier base and driving hard bargains with big commodity vendors, auto firms are looking at interesting new ideas for belt tightening.

Take Honda, which is looking at squeezing operational efficiency from its processes. It’s new-age cost consciousness includes a ‘green mission’ to grow creepers on shopfloor rooftops to cut down on AC dependence. Honda is also encouraging its employees to go home on time so as to cut back on electricity bills, says the E&Y study.

Honda, of course, isn’t an oddity. Across the product spectrum, auto companies are looking for some new ways to lose fat. And although the biggest focus and largest savings centre on commodity and parts costs, companies are looking at out-of-the-box solutions for even these time-tested strategies. Take for instance Maruti. The company has introduced the ‘one gram, one component’ intiative. The target: reduce the weight of every single part in the car. As part of this intiative, the OEM is encouraging its suppliers to make lighter components which will add up to reduction in car body weight. Not only does that mean lower consumption of essential commodities like steel, it also means more fuel-efficient cars.

Says Ernst & Young automotive practice partner & national leader Rakesh Batra: “Cost of material is between 70-80% for an automotive company and everyone is focussing on that to reduce costs. But companies will need to look beyond just that. The idea is to take a focussed approach to optimise profit per product.” Which explains why market leaders like Maruti, M&M and Hero Honda are stressing re-negotiation with big material suppliers like steel companies to skim the fat off its product costs.

Indeed, vendor management and value engineering are the two biggest belt-tightening prescriptions that Big Auto is betting on. But since that’s not enough, companies are innovating on the cost front. Honda for instance cut 6% in general administration costs through various measures including the ones mentioned earlier.

Tata Motors is doing it in a big way as is component major Rico. Companies are also trying to replace more expensive material with affordable substitutes. For instance, Hero Honda changed the leg guard coating from chrome to normal paint and saved Rs 45 per bike. GM India has stopped using external trainers and instead is going for internal trainers to train its staff. Its target is to save a fourth of its training costs in the new fisc, says the E&Y study.

Many of these ideas have actually come from the employees themselves. So Big Auto is now pushing employee participation in its cost initiatives. With good reason too. Maruti managed to save Rs 66.6 crore in fiscal 08, thanks to the more than 100,000 suggestions offered by its employees as part of its Suggestions Scheme.
November 10, 2008
Source: Economic Times
URL:http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/How_is_motown_cutting_costs/articleshow/3693223.cms

Sunita Narain: Buses and Barack Obama

We need to change our policies to get more buses on the roads — in Obamaspeak, we need change we can believe in.

What does the election of Barack Obama as the president of the US have to do with buses in India? A lot, if you think about it. The fact is that Obama has stood for something that he calls ‘change’ — in the way we think and the way we do business. But this is great rhetoric unless we can translate this into practical changes in our everyday lives. And to do this we must understand that change will require changes in our business models and most important changes in the priorities we set for what is essential and what needs to be invested into and how.

Anyone who lives in Indian cities and is crushed under the weight of traffic and pollution will accept that we need a massive transition to public transport. But the fact is that even as we say, we need public transport in our cities the number of buses in each of our towns has gone down and not up. In 1951, one of every 10 vehicles sold in India was a bus, today out of every 100 vehicles sold, one bus makes it on our roads.

But this is only the beginning of our problems. The fact is that even if we want buses we cannot have them. Why? Simply because our great automobile companies, who are busy churning out cars for our congested cities, do not have capacity the manufacture buses. There are only two real players in the market — Tata Motors and Ashok Leyland. These companies do not make buses. They manufacture a truck chassis, on which various body builders assemble the vehicles we see on our roads. As a result, when the city of Delhi or Ahmedabad places an order for an urban bus, with better components and designs for comfort, it does not get many companies to participate in the tender.

And when the city finally does place an order, the manufacturer cannot deliver buses in the quantity and speed required. Delhi placed its first for some 500 low-floor urban buses over a year ago. It is still waiting for all the buses to be delivered by Tata Motors. The company says it can manufacture roughly 100 units a month in its newly developed facility in Lucknow. Now, Delhi has placed another order for over 2,500 buses, this time dividing it between Tata and Leyland. Leyland says, that it will begin delivery sometime next year and will also be able to manufacture 100 units each month. Delhi is a city, which adds 1,000 vehicles each day. It will have to order another 6,000-odd buses for its roads. But who will make them?

For believers in the market economy, this question is a no-brainer. They say if there is a demand for buses, manufacturers will crowd it. But this is where we need to heed that the call for change is more than words. In this case, we need to recognise that the market needs a product, which is outside the reach of its consumers. Therefore, the challenge is to manufacture high comfort but affordable buses — a Nano-type solution.

The problem is that the bus market is different from the car market, which has been so carefully developed by manufacturers and credit agencies. So, even as the automobile manufacturers stand behind their cars and push and peddle their wares, they do little to push the vehicle that could drive millions in the country. The bus is the poor person’s vehicle and nobody it seems wants to do business with it. The reason lies in the fact that buses will have to be driven by agencies, which will do business in transporting people in cities. Currently, all our bus companies operate in the red. It is easy to dismiss this problem saying that this is the curse of the inefficient public sector utilities. But this would be missing the point.

The ministry of surface transport has itself calculated that the combined losses of Rs 2,000 crore in 2004-05 of the state-run public utilities would go down to less than Rs 900 crore, if the various Central and state taxes charged on the bus companies were removed. In current policy, we will willingly subsidise air travel and car travel by reducing taxes and underwriting costs. But we will not extend the same benefit to the bus.

The question is that why does this happen in a country where the majority still takes a bus? Why is the voice of the majority neutered in our democracy? May be this is why we need most of all to understand Barack Obama’s victory where the people spoke for change. Maybe there will be real change in the air after all.
November 7, 2008
Source: Business Standard
URL: http://www.business-standard.com/india/storypage.php?autono=339443

Slump time: Ashok Leyland opts for 3-day week

Slackening demand for commercial vehicles (CVs) has forced Ashok Leyland (ALL), the Hinduja Group flagship, to cut its working to three days a week until next month. The company said: “In the last few weeks, the medium and heavy-duty commercial vehicles market has been facing problems of inadequate funding and high-interest costs. As a result, market demand has come down.” Consequently, the company has “decided to moderate the production plan for the next two months”. A company statement added: “This decision has also been partially influenced by the problems encountered by the suppliers, as a result of power shortage in some parts of the country.”

ALL took the decision to cut the number of work days according to the established practice in the company and its understanding with the workers’ union. It is learnt that while the workmen will, at present, get their full salary for working for lesser number of days, the amount is proposed to be adjusted against future bonus payments, arrears and other payments, besides entitled leave. Company sources say that workmen have been told that the specific modalities will be worked out at a later date.

After three years of robust growth, the CV industry entered a tough phase in 2007-08. ALL’s total sales remained almost flat at 83,307 last year against 83,094 in the previous year. This year, the company was targeting to sell 1 lakh vehicles. However, in the first 10 months (January-October), it has produced 44,842 vehicles (45,660 in the same period last year) and sales have dropped to 39,029 (43,858). In October alone, sales halved to 3,397 vehicles (6,825 vehicles in October 2007). This is a sharp fall over 6,186 vehicles in September 2008.
November 7, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/Slump_time_Ashok_Leyland_opts_for_3-day_week/articleshow/3682967.cms

ACMA requests Govt. for a 2-3 year "Bridge Policy"

The Auto-Component Industry is deeply concerned about its immediate future growth prospects as it faces the oncoming of a winter of despair.

"At an emergency meeting of ACMA's Executive Committee, to discuss the current economic crises and its impact on the auto-component manufacturing sector, the Association has voiced the need for an immediate redressal package comprising of a 2-3 year "bridge policy" to enable the industry survive the current economic crises. While the Association remains very positive about the long term prospects of the auto and auto-component industry, the short term poses daunting challenges that has dampened the mood and affected the earlier positive mindset of the industry, which will lead to slowdown in capex if the liquidity in the financial system does not improve soon and interest rates become more moderate.

In the domestic market, the crippling liquidity crunch has slowed down vehicle demand, specially in the commercial vehicle industry. Payments from OEMs to vendors are getting delayed, loans for capacity expansion are difficult to secure and even disbursement of loans already approved by the banks are being deferred.

Furthermore, the exchange rate remains very uncertain, a strong dollar has already increased the landed cost of imported machine tools and raw materials by 14% setting a much higher price benchmark for domestic commodity pricing, inflation continues to be very high at 11% and raw material prices have not gone down significantly. Alloy steel prices remain particularly strong and have not shown reduction commensurate with price of alloying elements like Nickel, Molybdenum, Chromium, etc. To make matters worse, the steel manufacturers are seeking the re-imposition of Customs Duty on Steel which will further push up the prices of basic raw material for the domestic industry.

On the export front, global outsourcing to large traditional markets like USA have taken a stiff beating and hasseen a reduction of upto 30-40% in many cases. The SMEs are the worst affected as they lack the muscle to withstand such severe shock impacts. The overall exports growth of the auto-component industry has slumped to a meager 6% in the period April to September 08 as compared to a +25% CAGR over the last 5 years. The total export of auto-components was US $ 3.6 billion in 2007-08.

On the other hand, imports of auto-components continue to rise unabated at a high growth rate of almost 50%, with total imports growing to US $ 5.3 billion during 2007-08. Consequently, India today, is a net importer of auto-components.

ACMA has made the following specific recommendations to tide over the current situation and to ensure that the current slowdown does not snowball into a full fledged recession in the coming months:-

a) The Customs Duty on key raw materials, specially all categories of alloy and non-alloy steels should be reduced to zero.
b) Ongoing and approved funding by the Banks for capex requirements of the industry should continue without any disruption.
c) Government should take immediate steps to shore up liquidity in the financial system and evolve special loan schemes for the auto-component industry at concessional rate of interest.
d) Loans for SMEs should be rolled over by a few quarters to allow them more time to pay back.
e) Special precaution should be taken to ensure that Infrastructure Projects do not get delayed or deferred at this time of economic crises. Such large projects would provide the much needed multiplier effect for the automotive industry.
f) CRR and SLR should be further cut by RBI to bring in more liquidity in the system.
g) Government should take a pause in making any further cuts in Import Duties. In fact, in view of the increasing imbalance in the import-exports of auto-components, Government should consider revising the Customs Duties on auto-components as a temporary measure.
The auto-component industry was confident about their long term prospects, it was necessary to provide some immediate relief to the industry to sustain their growth over the next a few months to ensure that the momentum built over the last 5 years is continued to meet the vision of the AMP 2016.
November 6, 2008
Source: Machinist
URL: http://machinist.in/index.php?option=com_content&task=view&id=1747&Itemid=2

Auto dealers choke as financiers tighten credit

The liquidity squeeze has compelled yet another category of lenders — vehicle financiers — to curb disbursal of credit. According to sources in the auto industry, Reliance Capital and Tata Capital have almost stopped releasing funds to dealers for car loans as well as working capital financing. Dealer sources say in the last 10-15 days in particular, financing from these companies has nearly dried up.

A Reliance Capital spokesperson said: “We have not ceased disbursing loans but are definitely conservative in our approach due to the current market scenario. Hence, we are being selective in disbursing loans.” The Tata Capital spokesperson, in a mailed response, denied the development. “There is absolutely no truth to this information,” he said.

This has hit car brands and dealers that enjoy exclusive arrangements with Reliance Capital, Tata Capital and Tata Motor Finance. Sources say particularly badly hit are a section of Tata Motors dealers that have exclusive financing deals with Tata Motor Finance. Brands like Volkswagen, Audi and Skoda, which have similar arrangements with Reliance Capital, too, are feeling the heat.

The tight money situation has left dealers cribbing in a month when the festival demand spurt has been largely missing. Dealers are particularly sore that apart from the soft-credit payments that were earlier available, finance companies and banks have also stopped floor funding that helps finance inventory needs.

Tata Motors dealers say that the sharp drop in sales is the result of banks and financial institutions turning away even credit-worthy customers. For Volkswagen, which has chosen Reliance Capital as its preferred partner, credit to dealers was stopped two weeks ago.
November 5, 2008
Source: Economic Times
URL: http://economictimes.indiatimes.com/News/News_By_Industry/Auto/Automobiles/Auto_dealers_choke_as_financiers_tighten_credit/articleshow/3674420.cms