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Auto components benefitting from weak Rupee

Auto components benefitting from weak Rupee

Weaker Indian Rupee turns
auto suppliers into a favourite sourcing destination


Auto_components_1.jpgIt may sound ironic, but is
real. The weakening of Indian Rupee has turned Indian auto suppliers into an
interesting sourcing destination for many across the globe. If it is a blessing
in disguise, industry sources whom APF spoke to, could not decide. The fact is,
India seems to have suddenly turned into a highly cost competitive sourcing
destination in comparison to some of the most preferred sourcing destinations
around the world like China, Mexico, countries in Eastern Europe and elsewhere.

If the weakening Indian Rupee
has been exerting pressure on automakers, which continue to import substantial
amount of components for the lack of volumes, or for some other reason, forcing
them to hike prices, automotive suppliers with capabilities to deliver
value-added services that include sub-assemblies are increasingly finding
favour with global automakers. India has had a strong local supplier industry
for long, and many auto suppliers have collaboration with a well-established
foreign supplier, or have had a fruitful collaboration in the past. Such
exposure has turned them into businesses that are aware of the needs of global
automakers, including the highly competitive terms on which they would want to
source components. 

A favourite destination for
automakers the world over for long, Chinese auto suppliers seem to have lost
the lead with the rising Renminbi. Some of the global automakers that have been
eyeing the Indian market as a sourcing destination, and have invested in
sourcing channels, are expected to find it more favourable to source components
from India. Such automakers already have the necessary relation with the auto
suppliers, and are therefore aware of their capabilities as well as their
ability to deliver. The other automakers that could stand to gain from the
sudden emergence of India as a favourable sourcing destination are global
automakers like the Renault-Nissan Alliance.

Carlos Ghosn, CEO and
Chairman, Renault Nissan, has a reason to rejoice according to an industry
source. Mr Ghosn, according to this source, was aware of the Indian auto
industry’s capability and growth potential even before his company entered into
collaboration with Mahindra for the production of Logan. Not content with the
collaboration with Mahindra, he drove his alliance (companies) to set up a
greenfield plant at Chennai, and set up a design centre at Mumbai. The setting
up of a regional design centre at Mumbai was a bold step on the part of Renault
indeed, and not stopping at that, Mr Ghosn encouraged activities that have
enabled companies like the Renault Nissan Alliance to better position them in
the Indian market, reaping the benefits the Indian auto industry has come to
offer over the years. It should not come as a surprise therefore, that Nissan
chose to hold the world premiere of Datsun GO in India.

The GO is aimed at the
emerging markets of India, Russia, Indonesia and South Africa, and saw a
significant part of its engineering done at the engineering centre based at the
Chennai plant. Going a step further in its strategy to better leverage the
abilities the Indian auto industry could offer, Carlos Ghosn recently announced
that that the Renault-Nissan Alliance is developing all-new vehicles to meet
the specific demands of new car buyers in the world’s fastest growing

The announcement marks the
first all-new program developed from the ground up by Renault SAS and Nissan
Motor Company Ltd, teams working side by side from inception. The program,
internally named CMF-A, covers the most affordable category of cars in the
Common Module Family, Renault-Nissan’s unique modular system of vehicle
architecture. The CMF approach defines vehicles as five essential modules: the
engine bay, cockpit, front underbody, rear underbody and electrical/electronic
architecture. The compatible parts can then be assembled into hundreds of
possible configurations, for maximum efficiency and brand differentiation.

Production of vehicles within
the CMF-A scope will begin in 2015 at the Renault-Nissan Alliance plant in
Chennai. Renault and Nissan will reveal additional details, including pricing
details and product volume, closer to the start of production. Like all CMF
categories, CMF-A offers a high degree of flexibility. Significant body style
and powertrain variations can be matched to specific customer needs and
preferences in India and other high-growth markets.

Auto_components_2.jpgThe other automakers that
have been investing in India include Ford, Hyundai and Maruti. One of the first
automakers to aid in the development of the automotive supplier industry in
India, Maruti, owned by Suzuki of Japan, is building a new plant in Gujarat.
The plant is expected to be commissioned early next year. Once up, it would
provide the needed fillip in terms of numbers as well as exports. Maruti
exports a good number of its models to other markets in the world.

A complex phenomenon the
export of automobiles is really. It involves import of some auto components or
raw materials, which could also include the raw materials imported by the
component suppliers, and leads to a fine balance of payments if not profits and
margins. Subsequently, import content, currency exchange are some of the factors
that decide the pricing of an automobile in the local market as well as in the
export markets.

An industry source pointed at
Ford’s new EcoSport crossover, which is likely to be exported to over 60
countries by 2017, as prime example of how automakers are driving their
investments in India by taking advantage of the local business environment
here. The Figo small car is being exported to 38 markets in the world from
India. If the export of Figo presents an interesting example of how the Indian
auto industry has increased its global reach, one needs to know that Indian
auto suppliers have also come to build a good reputation in many markets  of the world. A weaker Indian

Rupee has
further enhanced their attractiveness.

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