India’s automobile industry has raced from a crippling slowdown to scorching growth in less than two years. But a severe shortage of parts is applying the brake in this otherwise rosy journey
The assembly lines at Mahindra & Mahindra’s car factory at Nashik, Maharashtra, are chugging nonstop again. The bitter memory of the 2008 slowdown in sales — when the plant shut down for a few days and the fear of retrenchment loomed large — seems ironic now. Every worker and every bit of machinery has been mobilised to meet the ensuing surge in demand that has seen M&M’s overall monthly sales zoom 70 percent in the last two years. While car buyers are clamouring for the Scorpio and Xylo models, the plant is also getting ready for three of the company’s new launches. Two of them will be variants of existing models and that last one, an all-new Scorpio set for a March 2011 release. By all means, it must be what they call an exciting time at M&M.
During the slowdown, when monthly sales of cars plummeted below 100,000 units, car makers cancelled a huge number of orders. Auto parts firms were forced to cut down production and reduce costs at a lightning speed to cope with this. And they were still in that gloomy mood in early 2009, when demand for cars returned as suddenly as it had vanished. “No one had expected the pick-up to be so fast and so sustained,” says Harish Lakshman, managing director, Rane TRW Steering Systems. “Many auto component companies had scaled back when the recession happened.”
Only a handful of suppliers have realised this and are stepping out to new customers and markets even as they invest in domestic expansion. Bharat Forge, for instance, is adding new business lines outside the auto industry even as it is stepping up component capacity. But, most of the industry is still at the mercy of orders from their pivot OEMs.
(This story appears in the 17 December, 2010 issue of Forbes India. To visit our Archives, click here.)