By Songbedna Bauri: The automobile space as a whole is growing at a rapid pace but the margins of the auto component SMEs are consistently becoming thin, said Vinnie Mehta, executive director of Automotive Component Manufacturers Association (ACMA) in an exclusive interview with SME News. Despite the various challenges witnessed by the auto component SMEs, this sector will reach $110 million by 2020.
Here are the excerpts from the interview:
What is the role that ACMA plays for the SMEs engaged in the auto component sector?
Vinnie Mehta: The Automotive Component Manufacturers Association of India (ACMA) is over 50 year old industry body. We represent over 650 members and close to 70% of the membership come from the small and medium enterprises (SMEs). In fact, whatever ACMA does, it is primarily in the interest of SMEs. We play a prominent role in shaping the industry conducive policies and also carry out various business development initiatives such as buyer-seller meets for the original equipment manufacturers (OEMs) and Tier-1 suppliers. ACMA continues to play a very important role in the promotion of the industry and business development. We successfully run the ACMA Centre of Technology (ACT), which spearheads the drive for quality, productivity and technology. We have highly qualified councillors on our rolls for the said purpose. We are actively involved in trade promotion, technology upgradation, quality enhancement and collection and dissemination of information which has made ACMA a vital catalyst for this industry's development. The other activities include participation in international trade fairs, sending trade delegations overseas and bringing out publications on various subjects of topical interest to the automotive industry. We also undertake cluster programmes with definite roadmaps, which could be company specific i.e., it depends upon the state of evolution of the company. The periodicity of the new cluster development programmes depend upon 6 months-2 years based upon local maps. We also organise events and trade shows and bring out studies periodically to track the health of the sector. ACMA is represented on a number of panels, committees and councils of the Government of India through which it helps in the formulation of policies pertaining to the Indian automotive industry.
What are the current projects being undertaken by ACMA?
Vinnie Mehta: Right now, two in-depth studies are being carried out with the aim to look for opportunities beyond traditional manufacturing. The first study focusses on ‘how auto component sector can become a hub for R&D and product development’ and the second study is on 'analysing Indian auto Component industry's competitiveness and identifying emergent opportunities'.
Please elaborate on the performance of the SMEs in the auto component sector?
Vinnie Mehta: During the financial year 2009-10, the size of the auto component sector was at $40 billion, while the exports were at $5.25 billion. This industry continues to grow at 14%. Although, the auto vertical as a whole is growing but the margins in the auto component space are increasingly becoming thin. The situation is more stressed out for the SMEs. There are quite a few challenges which are impacting the SMEs – access to easy capital, cost of capital, availability of skilled manpower, inadequate infrastructure etc. What needs to be understood is that the SMEs should scale up operations, which will in turn help strengthen the productivity levels.
It is believed that the auto component makers are hit with various roadblocks (rupee depreciation, high interest rates and petrol prices) amid the global slowdown? What’s your take on it?
Vinnie Mehta: It is time we internalise the fact that although overall demand curve for the sector will rise, there will be few ups and downs from time-to-time. ACMA envisions that the auto component sector will touch $110 billion by 2020 out of which $80 billion will come from the domestic market and another $30 billion from exports.
The auto component makers have been demanding uniform standard for auto components for both original equipment makers (OEMs) and after sales to combat counterfeits in market. Do you think it will help the sector?
Vinnie Mehta: The counterfeiting market in India is growing rapidly and it is a major concern for the organised sector as this problem is spreading its wings. This market is growing at 15-20% per annum and causing lot of worry for the organised players. The counterfeiting problem has gained pace in India an also causing considerable loss to the government. The size of the counterfeit market stood at Rs 33,000 crore during the financial year 2011-12. ACMA in this regard has created a White Paper and submitted it to Ministry of Road Transport and Highways, Bureau of Indian Standards. One way of tackling the counterfeit market for aftermarket products is by mandating standards, especially for safety critical ones, as currently there exists no such standards.
Can you throw some light on the main challenges witnessed by the SMEs in the auto component sector?
Vinnie Mehta: Few of the key challenges which are impacting the growth of the auto component SMEs are access to capital coupled with its cost. In markets such as the US, Japan, Europe etc the lending rates vary between 0-3% as compared to 17-18% for Indian SMEs. SMEs are under the strong grip of many problems such as absorption of technology, manpower availability along with infrastructure challenges. Most of the SMEs in India are a one-man-army and therefore, depth of management is also an issue.
How far do you think that the government policies and initiatives are working in favour of the SMEs and the sector as a whole?
Vinnie Mehta: The government especially the Ministry of Micro, Small and Medium Enterprises (MSME) has been very supportive of ACMA initiatives. ACMA has proposed the setting up of Technology Upgradation Development Fund under the aegis of the MSME which has found acceptance for the 12th Five Year Plan. We hope this will soon be realised.
Do you think that Foreign Trade Policy will help the industry overcome the challenges?
Vinnie Mehta: We are happy that recent supplement to the FTP has been favorable to the automotive sector. In the product focus scheme, 5 new auto component products have been added, while in market linked products focussed scheme out of 46 new products that have been added, 23 are auto components. This move will definitely help promote exports from the auto component sector.