Auto Parts Companies Shifting Gear

Until recently, most SMEs in the Indian auto component industry focused largely on expanding their horizons and diversifying their export business. Auto part firms were more concerned about their overseas sales than the margins in the domestic market. However, things are changing fast. An increasing number of SMEs are now turning to the domestic market as this market promises higher returns and better valuations for their products.

A large number of original equipment manufacturers (OEMs) and SME auto component firms have begun adopting a domestic-market-oriented approach rather than just focusing on the export sector. The shift in focus has been largely driven by the surge seen in domestic sales and the shrinkage recorded in the export business over the last one year.

Reviewing the domestic market potential

Following the recent downslide in the global auto industry, following General Motors and Chrysler Llc. filing for bankruptcy, the export volumes of Indian auto parts firms have plunged drastically. Nonetheless, domestic sales have shown an upward movement, in contrast to a 2004 projection by management consulting firm, McKinsey and Co.

'Contrary to Mc Kinsey's projections, the turnover in the domestic industry has gone beyond what was expected, while exports have lagged. No one had expected such a drastic downward movement in and around Europe, which has resulted in lower overseas earnings for the Indian auto component exporters,' said Vishnu Mathur, Executive Director of Automotive Component Manufacturers Association of India (ACMA).

According to estimates, local auto component firms have together grossed $14.4 billion in domestic sales during the last financial year, while exports have been lagging way behind the target of $3.6 billion.

'Considering the changed market dynamics, due to which revenues are generated more from the domestic market than overseas, small and mid-sized auto parts dealers are also thinking it wise to make the shift to the domestic market,' said P Agarwal, proprietor of MK Auto Trading Agency, a small-sized suppliers of Auto Parts Manufacturers in Kolkata.

SMEs in the auto component industry, which plans to leverage the growing demand for auto components in the country, can also take help from ACMA. The apex Automotive industry association plans to draft a new road map for the industry to help them boost their local sales

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Author: David Parks