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Following improved auto sales figures in April, analysts expected an early end to the long-continuing woes of Indian SME auto component makers. Indicators on the domestic front led industry players to believe that the recessionary pressures have begun to ease, and revival in the global auto market will take place very soon. However, this is not likely to be the case.
The miseries of small-scale auto part makers and original equipment manufacturers (OEMs) in India are feared to prolong further as the global auto market continues to reflect a downward trend and problems on the domestic front show no signs of abating either.
Increasing obstacles for OEMs
The coupled effect of the global economic contraction and cheaper imports is making it difficult for Indian auto component manufacturers and exporters to enjoy a smooth ride. The sales in the US auto market, which is the main export destination for the Indian auto component suppliers, has so far shown no signs of improvement.
The news of GM's and Chrysler's bankruptcy filing in the US had a major impact on US auto sales. Consequently, it plunged by 34% in April as consumers steered clear of making new purchases and stayed away from dealerships amid the rising economic uncertainty.
'Deteriorating sales volumes in the US, liquidity pressures and negative market sentiment worldwide are impacting the performance of Indian small and mid-sized auto component firms,' commented Rajesh S Kothari, Chairman of a small-sized Ahmedabad-based automotive firm, Rohan Automotive Equipments.
Moreover, as a consequence of the recent spurt in the import of cheap auto components from Chinese OEMs, small and mid-sized auto component units in India are losing their competitiveness and market share to their Chinese counterparts.
'The dumping of low-priced components from the Chinese OEM sector is eroding the cost advantage of Indian auto component units in the global market. This has further aggravated the woes of SME Auto Parts suppliers, who are already witnessing a margin squeeze for the past few months,' says PM Balan, Director of Dynamic Gaskets Pvt Ltd, a mid-sized automotive metallic gaskets manufacturer in Chennai.
Given the challenging times the auto component industry is presently going through, it has become imperative for the government to announce immediate relief measures and take steps for improving the competitiveness of SME auto component sector. Providing financial assistance to small players and offering subsidies to domestic OEMs will enable the sector to regain their market position and survive against the Chinese competitors.
As signs of global auto market resurgence still seem distant, the Indian SME auto component sector needs to tread with caution.
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