Bumpy road ahead for auto component makers

Vijay C Roy

Tribune News Service

Chandigarh, June 9

The auto component industry is struggling hard to limp back to normalcy. Amid sluggish demand from domestic original equipment manufacturers (OEMs), the auto component manufacturers in North are currently operating at around 15-20% of their capacity. However, overseas demand appears to be picking up slightly faster than the domestic market and it has brought some respite to them.

Currently, the industry is facing issues of working capital due to large outstanding receivables and non-availability of skilled and semi-skilled labour — Gurinder Singh, managing director, Guru Nanak Auto Enterprises

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The auto component sector has been under stress since the last quarter of 2018 and the Covid pandemic has further hit the bottomline of the companies.

“The stock and WIP (work in progress) is very low due to the BS-VI changeover. The market demand in May was approximately 15-20% of the normal demand,” said Gurinder Singh, Managing Director, Guru Nanak Auto Enterprises.

The sale of major vehicle manufacturers was just a fraction of what they had reported in the same month last year. The automakers registered almost negligible sales in April because of the lockdown. The vehicle sales in India are counted as factory dispatches and not retail sales. The decline in sales not only hit the OEMs but the small vendors that supply components to the OEMs were also affected.

Industry body Automotive Component Manufacturers Association (ACMA) has said the auto component sector may see huge job losses if the automotive sector continues to face headwinds due to the lack of demand amid the pandemic.

“Overall, the industry is under stress due to weak volumes. In Punjab, the capacity utilisation of the auto component makers is 15-20%,” said US Ahuja, MD, New Swan Enterprises, Ludhiana. The drop in sales has jeopardised the capital investment plans for expansion and modernisation.

With over 10,000 units, including micro and small enterprises, the region comprising Punjab, Haryana and Himachal Pradesh is one of the major hubs for auto components. It caters to nearly 30% demand of the auto industry in the country, with Haryana having the maximum number of auto component units in the country. A majority of the industry is dominated by the MSMEs.

On being asked about the issues plaguing the industry, Gurinder Singh said, “Currently, the industry is facing issues of working capital due to large outstanding receivables and non-availability of skilled and semi-skilled labour.”

Besides this, supply chain constraint is another issue. Some manufacturers also have labour issues due to reverse migration of workers. In order to boost the demand, the industry says the government should focus on increased spending on infrastructure, expediting vehicle scrappage policy and availability of funds to the MSMEs through priority lending to accelerate the economy in general and the auto component sector in particular.

The manufacturers anticipate that capacity utilisation is expected to improve over months, though sluggishly. According to Singh, most of the OEMs and auto component manufacturing companies are slowly recovering from the Covid impact.