Sphere Of Spares: Growth Trends

Guest Commentary December 2018 Boodmo Spares Growth Trends
Sphere Of Spares: Growth Trends

OLEKSANDR DANYLENKO is Managing Director & Co-Founder, Boodmo


As India’s transportation infrastructure witnesses mammoth growth, and the per capita income of Indians swells, we are seeing more Indians upgrading their personal and commercial modes of transportation. Cyclists are shifting to motorbikes, motorbike owners are moving to cars and existing car owners are upgrading to better cars. The commercial vehicle movement is also accelerating, with vehicles getting more standardised and sophisticated with every passing day.

However, this is not surprising at all, as the automotive industry in India has been continuously growing at a vigorous pace, making it one of the largest and the most promising automotive markets in the world. Leading automakers from the Asian, European as well as the US markets are all introducing their wagons in the Indian lodestar. Maruti and Hyundai, which cater to more than half of the vehicle sales in the Indian market, are still improving their sales; India tops the Asia-Pacific region for car sales of Honda; it is the second largest manufacturing base in Asia for US-based Ford Motors; and is among the top 10 international markets for French automaker Renault.

Although the number of cars per one thousand people in India stood at a dismal 167 [1] in 2015, as the economy is growing, cars will be sold in larger numbers in times to come. This will, in turn, lead to an exponential growth of automotive spare parts market in short and medium term.

COMPONENTS INDUSTRY

As per the performance review published by Automotive Component Manufacturers Association of India (ACMA) for the FY 2016-17, the Indian automotive components industry amounts to $ 43.5 bn, accounting for 2.3 % of India’s GDP. It holds an impressive four per cent share in overall Indian exports and provides direct and indirect employment to over three mn people in total. Revenues of the components industry have risen from
$ 26.5 bn in fiscal year 2007-08 to $ 39 bn in 2015-16, and $ 43.5 bn in 2016-17, growing at a CAGR of 5.66 %. The industry is expected to post more than 13-15 % growth in the upcoming fiscal year, due to a strong growth in domestic passenger vehicle, commercial vehicle, tractor and two-wheeler segments. With such pace the industry will touch $ 100 bn volume in 2024.

COMPONENT MANUFACTURING IN INDIA

Considerable investments in specific Indian states, which are viewed to be business-friendly, have created regional hubs for automotive manufacturing and allied industries. These clusters can mainly be divided into southern, western and northern regions. Although the infrastructure for regional connectivity has significantly improved in India in the past few years, India’s coastline states still enjoy an advantage due to their proximity to seaports.

Tamil Nadu has emerged as the most important auto component hub of India. Worth $ 6.2 bn, the region creates 35 % of the country’s overall auto components. Around 350 large suppliers and over 4,000 SMEs have their manufacturing hubs here. The ports of Chennai, Tuticorin and Ennore have unrestricted movement of auto component consignments, with dedicated berths allotted for this cause.

Prospects are high in Andhra Pradesh, as alongside GST compensation, manufacturers in the Automotive Suppliers’ Manufacturing Centres (ASMC) clusters are eligible to receive financial assistance for fixed capital investments, up to a maximum of $ 3.5 mn. The western coastal state of Gujarat has recently emerged as an auto spare parts manufacturing hub in the country.

The Gurgaon-Manesar-Bawal belt is also a key emerging auto component hub within the northern state of Haryana and manufacturers in this area receive priority in the allotment of developed land by the state government. Further, its location in the country’s north has resulted in the construction of dedicated railway sidings, equipped with inventory management and dispatch centres, which connect to the country’s several ports.

EXPORTS

India is rising as an international nucleus for auto spare parts sourcing. The total value of India’s automotive exports stood at $ 10.9 bn in 2016-17, witnessing a growth of one per cent in 2017; with the CAGR being projected at 30 % for the next 10 years. Industry experts say that this has been driven by strong growth in the domestic market and increasing globalisation of several Indian suppliers [2].

This has a lot to do with the fact that India is the third largest steel producer in the world – a pivotal metal in the production of auto spare parts that alongside cheap labour, helps keep a tight rein on costs. Such cost-effective manufacturing keeps costs lower by 10-25 % as compared to manufacturing in Europe and Latin America. India is also closer to major automotive markets like the Middle-East and Europe, as compared to its competitors. With the international auto-giants, mostly based in Europe and the US, increasingly venturing in overseas settings for manufacturing auto components, Indian auto components segment is set to hugely benefit from this trend.

Therefore, the components export industry looks robust and is all set to grow momentously in the near future. This could account for approximately 26 % of the total auto components market by 2021.

GOVERNMENT INITIATIVES – PRESENT AND FUTURE

Strengthening the manufacturing prowess of India’s automotive sector, a principal beneficiary of which is the auto component industry, is a pivotal goal of the ‘Make in India’ initiative. So far, government schemes such as the Auto Policy of 2002, the Automotive Mission Plan 2016-2026, National Automotive Testing and R&D Infrastructure Projects (NATRiP), etc. have helped the components industry achieve considerable growth. The Indian government’s Automotive Mission Plan (AMP) 2006-16 has had a tremendous effect on the automobile industry’s growth in the country. It has significantly raised the automotive industry’s contribution to the national GDP, making it one of the dominant sectors. The optimistic plan aims to make the local component aftermarket alone worth $ 8 bn [3].

ONLINE SALES

Presently, the auto component B2C and B2B sale channels in India run under the hegemony of traditional stores and garages. These stores and garages are the ones that interact with the end-customer and hold the power to sway customer opinions due to lack of actual information and common knowledge among the masses. It is one of the most unorganised sectors in the industry and certainly needs a formal and calculated intervention to organise it.

Online customer marketplaces, with their transparency and credible customer policies, are the right fit to formalise this sector. Several online marketplaces are springing up to fill this void; yet, a majority of them are unable to provide a credible platform. Therefore, credible online auto component marketplaces are the need of the hour. As the e-commerce automotive ecosystem grows, it will be truly a disruptive trend right from procurement of authentic products and payments to timely product delivery and will help create better solutions for the distribution channel’s woes in an efficient manner. It will also help regulate payments and tax compliances.

ROAD AHEAD

The swiftly globalising world of business is creating newer avenues for the industry, especially while making a significant shift towards electric and hybrid vehicles. These vehicles are deemed safer and better modes of commuting. Over the next few years, this trend will create newer opportunities for auto spare parts manufacturers, who would need to rapidly adapt to the changing trends. While the electric cars are not a threat for overall OEM and aftermarket auto-component business, they will certainly disrupt the sale of certain consumables like oil and filters and other engine-related parts, while making space for newer products.

As Indian auto components industry is set to become the third largest in the world by 2025, the auto spare parts makers and sellers will not spare any effort in deriving advantages out of this globalisation and changing trends.

REFERENCES

[1] https://community.data.gov.in/registered-motor-vehicles-per-1000-population-from-2001-to-2015/

[2] http://www.acma.in/pdf/Annual_Report_06102017.pdf

[3] http://www.siamindia.com/uploads/filemanager/47AUTOMOTIVEMISSIONPLAN.pdf