Ramesh Suri, the newly elected President of Automotive Component Manufacturers Association of India (ACMA), has taken over the reins at a time when the industry has probably bottomed out. Tasked with the responsibility of restarting the industry on the path to growth, the ACMA President tells J Srikant about his top priorities, the pain points of the industry that need to be addressed, and how ACMA is hoping to help industry get back on its feet.
Q: Last year also we saw a sharp dip of more than 50% in the capital investments made by the industry compared to the year before? Do you see investments coming back this year or are we still some time away from it?
Suri: It is very difficult for me to comment at this juncture. This will be possible only when the companies have filed their returns at the end of the year. What is interesting to note is the fact that investment from component makers largely happen for two reasons; one if there is a Greenfield opportunity coming up with an OEM as in the Sanand belt or second, if the company gets into an expansion mode because of the increased demand.
But currently, while the green shoots are certainly visible, there is no indication to definitely say that the growth is here to stay, and till that time people will be cautious. Even now companies are operating on a 60-70% capacity utilisation, so there is no reason why companies should be investing at present. However, ACMA is communicating to companies that the worst is now behind us and that they should plan for the forthcoming growth cycle.
Q: ACMA also hosted the first Aerospace and Defence Summit not too long back. Is diversification one of the solutions ACMA is advocating for safeguarding the industry from the cyclical downturns?
Suri: Yes, one of the strategies to de-risk is certainly diversification; but companies will have to take an individual call. They will have to conduct an internal SWOT and see what suits them best; whether it is exports, expanding footprint in other markets or diversifying into other sectors.
While it may seem much easier to talk about diversifying, the issue is that market opportunities like aerospace and defence have a long gestation period; further these are low volume markets; despite the product being seemingly similar. The margins are no doubt high but it is an antithesis to a situation where you are used to very high volumes and low margins so the mind-set also has to be prepared to accept it. We definitely see opportunities ahead.
Q: But how would you rate the industry’s capability and preparation to diversify into the highly sophisticated aerospace and defence sectors?
Suri: Globally, there is a lot of compatibility between aerospace and the automotive sectors and therefore we have reason to believe that it can happen in India as well; but again one has to be ready and understand that while the two industries are seemingly similar, they have their own dynamics and are very different – aerospace has very stringent quality and delivery criterion with a significantly high gestation period.
Q: Do you see a lot of the component makers now preferring the aftermarket than the OEMs to sell, because of the price pressure with OEMs?
Suri: Whether one focuses on the OEM market or the aftermarket depends on the company’s strategy – each market has its own dynamics, challenges and opportunities. Further, OEMs are also active in the aftermarket and therefore there must be clear understanding between the OEM and its suppliers on how they would play in the aftermarket. Speaking generically, the margins in the aftermarket are better than the OEM market. A lot of suppliers are now looking at the global aftermarket which is as big as the OEM market.
Q: But there is also displeasure among component makers about OEMs not allowing them to sell the produce in the aftermarket. Is anything being done about that?
Suri: We are unable to comment on it because this is specific to certain OEMs and their suppliers. As ACMA we believe there is a need for regulatory reforms, as the market evolves, to the comfort of both the OEMs and the component makers.
Q: India is a country that cannot grow by itself in this globalised world and needs to collaborate with other countries for it. One of the ways India is trying to do this is by getting into FTAs. How healthy are these FTAs for the auto component industry?
Suri: At ACMA, we are not against trade agreements; we believe that trade agreements should allow for enhancement of trade between both the signatories and not for one party alone.
Unfortunately, till date the FTAs that India has signed are with those countries (Thailand, South Korea and Japan), that have relatively lower import tariffs compared to India. As a result, FTAs result in lowering of import duty for India, giving advantage to other countries, thus making India-made components vulnerable to imports. The government should therefore consider FTAs with nations that have relatively higher tariffs than India’s such as Brazil, South Africa etc. where average tariff is around 30% compared to India’s at 7.5-to-10%. This will enable market access to Indian suppliers in these emerging markets.
Lastly, the government should ensure that FTAs do not lead to an inverted tariff structure wherein the rate of import tariff on raw material is higher than that on the finished components thus rendering manufacturing unviable for such items in India.
Q: Many OEMs are expecting the component suppliers to have design capabilities and not just be build-to-print. While increasing number of suppliers today are doing well at it, do you think the industry overall is catching up fast enough?
Suri: It depends on the size of the company and what volume they are catering to. Keeping that in view, component makers have to make up in two ways; one is ‘product development’ and the other is ‘quality control.’ Some have already established the product development and some others are in the process of doing so. But as far as quality is concerned, most of them have it. Otherwise they can’t operate smoothly.
Not all Tier-2s and Tier-3s have this capability because it requires a large investment. In the last few years, some Tier-1s have already set up their own engineering, design, and even tooling centres, which is an encouraging sign but these are companies of a certain size. However, it will take some time for a vibrant culture of R&D in the industry. I would say a good beginning has already been made. You must also understand that we tend to compare the Indian market with those in Japan and America, which have been there for more than 100 years, while we have been in existence only for about 25-odd years. But we are now happy that the government has started supporting us, the industry gets benefits for investing in R&D. We have also requested the government to give us interest subvention for capital equipment for investing in R&D. To be truly global, one has to have one’s own products and designs.
Q: It also brings me to the question of technical collaborations. Is technical collaboration a necessity to get design capabilities? Especially when the industry is reluctant to make investments in R&D?
Suri: Again this depends on company to company. Some companies have technical tie-ups, some have equity tie-up. The options are there, but the company should also be in a position to leverage that. If there is a technical tie-up, one should be smart enough to absorb and internalise the technology.
Q: Safety is the biggest talking point in the Indian auto industry today, unfortunately not in a positive tone with the most popular cars failing the crash test. How do you think Indian component industry can contribute to improving the safety situation on Indian roads?
Suri: There is already a regulatory framework that is coming up, the new motor vehicle bill. The component industry will be compliant with the regulations.
Q: Tell us about the Cluster Programme – the achievements so far, and the goal?
Suri: Till date, we have close to 450 plants that we have helped graduate to world class levels. Members usually take advantage of these facilities and upgrade themselves with the best practices and knowledge required for managing the operations of their units. It takes care of units striving to be competitive quality-wise and aids in operations to meet the requirements of their customers.
As an industry body we offer various cluster programmes categorised under various buckets, they would be from ACT, ACMA and UNIDO. ACT also implements customised quality projects based on the specific need of any manufacturing unit. The cluster programmes also focus on smaller and medium enterprises which are:
ACT MSME Lean Cluster
ACT MSME Advance Cluster
ACT Foundation Cluster
ACT Lean Project
ACT Advance Cluster
ACT Engineering Excellence Cluster
ACT New Product Development Cluster
Q: What are the kinds of growth rates that you are expecting this year? What do you think will drive this growth?
Suri: The automotive industry is showing early signs of recovery in India. In US and Europe too, passenger car sales have grown by decent rates since May 2014. These are early signals that give me a sense of optimism for the year ahead. Having said that, we believe that the worst is behind us and we expect the industry to grow in early single digits for the fiscal 2014-15.
Q: As the President, what are going to be your priorities?
Suri: I look forward to mobilizing the association towards achieving the targets it has set for itself, create new opportunities and move into different geographies, especially other emerging markets. Through various committees at ACMA we will endeavour to address challenges, domestic as well as international, being faced by the industry, interface with government agencies to create an enabling environment for investment, growth and development, and evolving our Industry’s value chain.
Apart from this the focus will also be to move together with the OEMs, Tier-1s and Tier-2s. Tier-2s need to be supported by us to ensure a smooth sail even while the Tier-1s are dependent on the Tier-2s. The other area that we are looking at is skill development. The third priority is to spread awareness among companies to upgrade their facilities, and guidance on how to manage the change. ACI
