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Auto Parts: The New Kid In Town

July 20, 2006
U.S. auto-components manufacturers take note: India wants your customers.

As if U.S. auto parts suppliers don't have enough to worry about, there's an emerging player in the global auto-components industry. The new competitor is India, and if current growth trends there continue, U.S. suppliers will have plenty to contend with.

The Indian auto-component industry has grown at a cumulative average growth rate of 21% annually in the past five years, according to the Automotive Component Manufacturers Association (ACMA) of India. An ACMA/McKinsey & Co. study shows India has the potential to grow from US$8.7 billion in 2005 to US$45 billion by 2015.

Despite the projections, some U.S. auto industry experts don't seem overly concerned. They say that, if anything, India presents more of an opportunity than a threat. Additionally, infrastructure problems and a slow-growing middle class continue to be major barriers for India's auto-parts business, says Neil DeKoker, president of the Original Equipment Suppliers Association, Troy, Mich. "It's a pretty small industry -- the automotive industry -- even though there's a lot of people there," he explains. "There is significant potential for growth, but it's from a very small base."

But ACMA's figures and recent trends suggest otherwise. Indian exports of auto components was US$1.4 billion in 2005 and is expected to increase upwards of 30% annually in the upcoming years, according to ACMA President AK Taneja. Also, Indian auto-parts manufacturers have begun acquiring some smaller U.S. suppliers. (Last year Bharat Forge Ltd., Pune, India, bought out Lansing, Mich.-based Federal Forge Inc.)

Bharat Forge Ltd. (pictured above), India's second-largest auto-parts manufacturer, acquired Lansing, Mich.-based Federal Forge Inc. in 2005.And more acquisitions could be on the way, indicates Taneja. "Indeed there are many Indian auto-component manufacturers interested in making strategic investment in U.S. companies," wrote Taneja in an e-mail. Taneja also stated that there's a "huge interest" from U.S. automakers to outsource parts production to India. In fact, Detroit-based General Motors Corp. said last year that the company plans to purchase $1 billion in Indian-made parts by 2008, according to a Wall Street Journal article.

"India does have its own domestic supply base, but really the opportunities there now are for the international players, both European and U.S. suppliers, and going forward India is going to be the key component of low-cost sourcing," says Michael McKenzie, a senior associate with New York-based PricewaterhouseCoopers LLP's PwC Automotive Institute.

India hasn't become a potential outsourcing base yet for Lake Forest, Ill.-based Tenneco Inc. Instead the company is eyeing India as part of its global growth plan, according to Hari Nair, executive vice president and managing director for Tenneco's Europe, South America and India operations. The $4.4 billion supplier of shock absorbers and exhaust products purchased an Indian hydraulics company in 1994 and an exhaust manufacturer in 1998. Tenneco's primary goal with the acquisitions is to serve growing Indian-based OEMs and automakers expanding into India, Nair says.

"If the customer is developing a global platform and it's going to be produced on, let's say four continents, our advantage as a supplier comes in because it's easy for us to say, 'If we're there, we can supply you everywhere you want to make this car.' "

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