Bumpy ride for region’s auto component makers

CHANDIGARH: As the demand for automobiles continues to remain under pressure for several months now, the North India-based auto component manufacturers have started feeling the pinch. The repercussion is visible across the entire value chain with ancillary units forcing to cut production by 25-30% to avoid inventory pile-up.

Illustration: Sandeep Joshi

Vijay C Roy

Tribune News Service

Chandigarh, June 13

As the demand for automobiles continues to remain under pressure for several months now, the North India-based auto component manufacturers have started feeling the pinch. The repercussion is visible across the entire value chain with ancillary units forcing to cut production by 25-30% to avoid inventory pile-up. In addition to this, many of these units have put their expansion and modernisation plans on hold. Some of the ancillary units are putting special thrust on sectors which are doing well.

Passenger vehicle sales in India posted the steepest drop in May by posting over 20% decline amid weak demand and liquidity crunch faced by non-bank vehicle financiers, forcing major auto makers such as Maruti Suzuki India and Mahindra and Mahindra to cut production. It was the seventh consecutive drop in monthly domestic passenger vehicle sales. Two-wheeler sales also continued to stay in negative territory. The vehicle sales in India are counted as factory dispatches and not retail sales. The decline in sales not only hit the original equipment manufacturers (OEMs) but small suppliers which supply components to OEMs are also affected.

“The weak demand is hurting the industry. On an average, the industry has cut down production by 20-25% in Punjab. Also, the drop in sales has jeopardised the expansion and modernisation plans of the MSMEs,” said US Ahuja, MD, New Swan Enterprises, Ludhiana.

With over 10,000 units, including micro and small, the region comprising Punjab, Haryana and Himachal Pradesh is one of major hubs for auto components. It meets nearly 30% demand of the auto industry in the country, with Haryana having maximum number of auto component units and share in the country.

“The industry is facing slowdown for the past couple of months. Some of the ancillary units have resorted to production cut while others have increased their focus on sectors which are doing extremely well such as power transmission and railways. The worst-affected are those which are heavily dependent on auto sector with limited products,” said Rajesh Jain, director of Rohtak-based Lakshmi Precision Screws Ltd. According to him, on an average, the industry has cut down the production by 25-30%.

While many of the units are struggling on the domestic front because of negative growth in the auto sector, some of the units have increased their exposure to export market to hedge the slowdown.

Gurinder Singh, joint MD, Guru Nanak Auto Enterprises, said, “The auto sector is facing hard times but I believe it’s cyclic. We have increased focus on overseas market which is doing better than the domestic market.”

“As the sales continue to decline, it is high time the government intervenes in the form of tax rationalisation and with easy credit facilities,” said Jain.

According to the industry, the share of SMEs in auto components is 25-30% of the industry’s turnover. These SMEs are manufacturers of high-volume components such as suspension and brake parts, fasteners, washers’ body and chassis parts.

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