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FUTURE OF AUTO COMPONENT INDUSTRY
PRESENTATION ON

• BY
• MR. M. RADHAKRISHNAN
• JT.MANAGING DIRECTOR

AUTOLINE INDUSTRIES LTD.
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PRIMARY GROWTH DEMAND

• Dependant on OEMs
• OEM market drivers (for India)
• Growth in Economic Activity
• Increase in the Personal disposable incomes
• Growth in Rural Economy
• Multiple easy finance options
• Decline in tax rates
• Economic vehicles (Nano effect )

3
After market Drivers

• Old vehicle population
• Life span of components (frequency of
  replacement).
• Average value of parts replaced.
• Share of genuine-branded components in the total
  aftermarket.

4
DOMESTIC MARKET

• Growth opportunities in terms of volume
• The domestic market for four wheelers is
  projected to grow at a compounded annual growth
  rate of 9 during the next few years.
• This will provide reasonably good growth
  opportunities in terms of volume to component
  manufacturers such as our company with facilities
  having latest technologies and mass manufacturing
  facilities.

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PRODUCTION OF FOUR WHEELERS
PAST AND FUTURE (IN 000S)
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INDUSTRY OVERVIEW

• INDIAN AUTO COMPONENT INDUSTRY
• The Indian automobile ancillary sector is
  transforming itself from a low-volume, highly
  fragmented one into a competitive industry, and
  backed by competitive strengths, technology and
  transition up the value chain. Broadly the
  Indian automotive component industry can be
  divided into the organized and the unorganized
  segments. While the forte of the organized sector
  is the high valued added precision engineering
  products, the presence of a large unorganized
  sector is characteristic especially of the
  lower value-added segments of the industry.
• In the organized segment, the component
  manufacturers supply components to at least one
  of the Original Equipment (Vehicle) Manufacturers
  (OEMs). Such component manufacturers usually have
  access to the required technology due to their
  tie-ups with some of the foreign collaborators or
  through their links with the automobile
  manufacturer. There are presently 29 Vehicles
  Manufacturers (OEMs) in India located at Gurgaon,
  Pune and Chennai who together manufactured more
  than 5.2 million vehicles during 2005-06.

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Original Equipment Manufacturers of 4-Wheelers In
India Production During 2005-06
American OEMs
Japanese/Joint Venture OEMs
Production in 000s Production in 000s
Maruti Udyog Ltd 572.10 General Motors India Pvt. Ltd 31.00
Toyota Kirloskar Motor Pvt .Ltd 45.00 Ford India Pvt. Ltd 27.00
Honda Siel Cars India Ltd 41.00 Total 58.00
Swaraj Mazda Ltd 12.00 KOREAN OEMS
Total 670.10 Hyundai Motor India Ltd 260.00
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Original Equipment Manufacturers of 4-Wheelers In
India Production During 2005-06
EUROPEAN OEMS Production in 000s INDIAN OEMS Production in 000s
Skoda Auto India Pvt.Ltd 9.80 Tata Motors Ltd 450.00
Daimler Chrysler India Pvt. Ltd 1.80 Mahindra Mahindra Ltd 128.00
1.00 Ashok Leyland Ltd 65.00
0.10 Force Motors Ltd 36.00
Fiat India Pvt.Ltd 0.70 Eicher Motors Ltd 24.00
Total 13.40 Hindustan Motors Ltd 15.00
Total 718.00
Volvo India Pvt. Ltd
Tatra Trucks India Ltd
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Original Equipment Manufacturers of 2-Wheelers in
India and production during 2005-06
JAPANESE OEMS Production in 000s
Hero Honda Motors Ltd 3006
Honda Motorcycles Scooters 603
Yamaha Motor India Pvt. Ltd 249
Suzuki Motorcycles India Pvt. Ltd 2
Total 3860
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Original Equipment Manufacturers of 2-Wheelers in
India and production during 2005-06
Indian OEMs Production in 000s
Bajaj Auto Ltd 2042
TVS Motors Co .Ltd 1367
LML Ltd 107
Kinetic Engineering Ltd 82
Majestic Auto Ltd 57
Kinetic Motor Co.Ltd 54
Royal Enfield 31
TOTAL 3740
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• The table below shows segment-wise distribution
  of the auto component Industry www.acmainfo.com.

Organized Component Manufacturers Unorganized Component Manufacturers
Year 1999 2006 1999 2006
Share in OE supply market 80 80 20 20
Share in Aftermarket 40 35 60 65
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The table below shows segment-wise distribution
of the auto component Industry www.acmainfo.com.
Organized Component Manufacturers Unorganized Component Manufacturers
Strengths 1.Higher production capacities 2. Captive OE market 3. Access to technology through tie ups 4. Quality standards 5. Potential to export 6. Improving quality consciousness of end users 1. Low capital investment 2. Minimal overheads 3. Taxes and levies exemption (violation) 4. Poor regulation on sale of spurious parts 5. Price sensitivity of market
Weaknesses 1. High Investment in plant and machinery 2. Higher overheads 3. Higher rates of taxes and differential regional tax patterns 4. Limited domestic OE volumes 1.Sub normal quality 2.Obsolete technology 3. Low capital availability 4. Restricted growth potential
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EXPORT MARKET

• Despite a relatively small share of Asia in
  the global pie, India is now amongst one of the
  most preferred destinations and has come to
  occupy the image of an exporting hub for most of
  the major global OEM players. Almost all the big
  auto manufacturers of the world are either
  already or are in the process of outsourcing from
  the country.
• Hyundai Motors India Export base for small cars
  
• Ford Motors India exporting CKDs of Ikon to
  South Africa and other countries
• Skoda India Hub for exports of cars to
  neighboring countries
• General Motors Global Purchasing Team
• Volvo Global buying team
• Delphi International purchase office
• Renault scouting for truck part suppliers

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Exports of auto components from India have
witnessed a CAGR of 20.3 over the last six
years. The value of exports which was US
300 million in 1997 had grown to over US 2000
million in 2006. GEOGRAPHICAL DISTRIBUTION
DETAILS OF AUTO COMPONENT EXPORTS FROM INDIA
Continent/Country Percentage share of Total Exports
Europe 36.00
USA 26.00
Middle East 10.00
Africa 10.00
Asia 16.00
Oceania 1.60
Others 0.40
Total 100.00
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There has also been a qualitative shift in
the composition of exports from being
predominantly for the aftermarket during the
1990s to the OEM market presently as depicted
below
Market segment Percentage share in Total Exports
1990 2006
OEM 35 75
Aftermarket 65 25
Total 100 100
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Global Trends that will impact the auto component
industry in India

• Global Industry - Major car makers in the world
  introducing car models simultaneously in
  different countries of the world - Ripple
  effect
• Under pressure to identify consumers preferences,
  national biases, Government regulations, new
  market segments - to gain market share, leading
  to impetus for Research, Design, innovations and
  changes in the manufacturing processes.
• Result Frugal Engineering (Renault Nissan
  Chairman)
• India emerging as a base of the entire
  worlds small car
• production

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• Pattern of demand for new cars.
• - In developed countries, Mature market with
  stagnant demand (1 growth over last 10 years)
• - Sales growth from China, India, South
  America, Eastern Europe (26 growth to go upto
  40 by 2010)
• Response to increasingly diverse set of customers
• - Large proliferation of segments models (
  challenges of cross over production from same
  line).
• - Plus myriad of features like power steering,
  power windows, cruise control etc.
• - No. of vehicle models offered for sale in
  the US market alone doubled since 1980 to more
  than 1050 in 2004.

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Strategies of Global Auto Majors impacting
Component Manufacturers
Adopt a global perspective in the operations
- Since 1990s, presence of all in virtually every
corner of the world. - Especially in Emerging
Markets, where all OEMs are fiercely competing
for market shares as the market grows. -
Leading to simultaneous launch of models in
different locations with similar standards. -
Replicate Supply Chain structures.
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Reorganization of their vehicle portfolio around
product platforms and car modules and systems.
- Declining sales per vehicle model, short
product life cycle preventing economies
of scale in design manufacturing with
adverse impact on cost. - Focusing on common
platforms and interchangeable modules
leading to faster lower cost deployment of
new solutions across the whole product range,
while tailoring vehicles to a multitude of
tastes and preferences of consumers in
the world. - Design with a common underbody
platform adapting body, trim and ride to
particular market conditions.
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• Wave of Consolidation
• - Perspective of future platform sharing
  clearly acknowledged in deals such as Daimler
  acquiring Chrysler, GM Mitsubishi, Nissan
  Renault, Nissan Renault Mahindra, Nissan
  Renault- Bajaj Auto (for Joint Manufacturing).
• - Estimated that within next 5 years, less than
  10 independent automakers may survive.

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• Increased Vendor Responsibilities reaching
  impressive levels - treated as partners
• - Passing the responsibility of developing,
  manufacturing and assembling important sections
  of the Car on to their Vendors.
• - Attempting innovative approaches in terms of
  assembly suppliers assemble a number of modules
  in the final assembly plant and attach them
  directly to the vehicle themselves. (V/W GM
  projects in Brazil) - ( Drivers Cabin for CVs)

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• Role of technology in reshaping the industry
• Extent to which a Design is economical,
  functional and easy to manufacture impact new
  cars revenues costs.
• Cars are technically complex in that
• a) fairly deep level of engineering expertise
• b) a large number of parts must fit together in a
  precise way i.e. product architecture is integral
  , rather than modular.

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• Today most functions in the styling , design
  engineering departments are done utilizing
  computers and math based engineering (as against
  paper based (draftsmen) ,clay models based
  processes).
• Various software tools and processes, such as
  FEA, CAE and product data management (PDM/PLM)
  practices are utilized to validate the components
  to validate the components for
• -Form, Fit Function.

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• Auto Component Industry in a state of Transition
  and Transformation
• Indian auto component industry to take advantage
  of the transition that is taking place
  internationally and dominate the global supply
  chain in auto components due to
• - reasonably priced skilled work force
• - large population of technology workers
• - established strengths in I.T. and
  electronics.

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• Transformation of global auto component industry
  structural change from 1,2,3 4th tiers to 0.5
  tier structure.
• New direct suppliers are either specialised in
  complex systems OR integrators of several simpler
  systems.
• - Systems Integrators Suppliers capable of
  designing and integrating components,
  subassemblies and systems into modules.
• - Global standardizers Systems Manufacturers
  capable of setting the standard on a global basis
  for a component or system through design,
  development and manufacturing of complex systems.
• - Component specialists - Suppliers capable of
  designing manufacturing a specific component or
  subsystem, for a given car or platform process
  specialists or product specialists.

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• INDIAN ADVANTAGE IN DESIGN DEVELOPMENT
• In the new paradigm, the design and development
  capability is a critical success factor.
• India has emerged as an offshore hub for software
  services outsourcing.
• - Design development and supply of auto
  components provides a far greater opportunity as
  Automobile Industry is one of the largest
  industries in the world.
• - Leading OEMs have started outsourcing
  designing work to start- ups such as Virtual E
  3D and Ecad in India.
• - Have set up their own captive development
  centres in India

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• Worldwide market for design services pegged at
  USD 11 billion (Rs. 44,000 Crores) and presently
  Indias share is a mere 1 percent
• - Almost all major Auto and auto component
  companies in India are using 3D software
  engineering design tools to create designs .
• - India offers more than 20 cost reduction to
  any client and hence Global OEMs tempted to
  outsource to India.
• - A typical CAD project in the USA will cost
  about USD 60 per man hour, as against about USD
  25 in India.
• - India is known world over for its expertise
  in I.T., and has a long history in manufacturing
  , with strong domestic market.
• Outsourcing of engineering design services is a
  Big Opportunity for India.