Low for high technology products. Unorganized sector dominates the domestic component market due to excise benefits. Generally, excess supply persists.

Linked to automobile demand. Export demand is linked to the increasing acceptance towards outsourcing.

Capital, technology, OEM relationships, customer service, distribution network to meet replacement demand.

Low with OEMs. Relatively high in the replacement market

Companies operating in the export market face competition at a global level. At the domestic level, market structure is fragmented for a large number of ancillary products. Most companies adopt low cost and differentiation strategies. In some products (like batteries), only two or three companies control over 80% of the market.

Will intensify, as global players will enter the market leading to consolidation. Dereservation of SSI will result in access to capital and technology

With growth in passenger vehicles and commercial vehicles turning robust once again in FY07, auto component industry also witnessed growth as output increased by 25% in FY07 (provisional). Exports too continued with its strong performance and grew by an impressive 40%.

In light of increased competition in the global market and over supply situation, bigger auto majors faced significant pressure on margins. However, the imperative to invest in new product development increased. This resulted in select global majors increasing budget for outsourcing of components in order to save cost.

Capacity utilisation rates of the auto ancillary sector as a whole increased significantly in light of higher exports as well as growth in domestic demand in FY07. The demand for commercial vehicles increased by 33% in FY07. For instance, Bharat Forge had to ramp up capacity by 20% to meet demand as opposed to capacity utilisation of just 68% in FY06. The same was the case with Exide.

The year was also witness to increase in overseas acquisitions by domestic companies. Tractor giant M&M, in a bid to become a leader in forgings acquired a clutch of Europe based ancillary companies. Amtek Auto too continued with its overseas binge.

There has been a conscious effort by manufacturers to improve productivity of the suppliers in the past few years. Though the number of active vendors has declined significantly for auto manufacturers, technology transfer and fresh fund infusions have resulted in improved productivity in the remaining ones. This is a big positive for the industry, as historically, the sector has been deprived of proper technical know-how and lack of funds. Relaxation of FDI norms for the small-scale sector could emerge as one of the key growth drivers in the long run. The Indian automotive components industry has lined up sizeable investment schedules for the next few years.

The automobile sector is cyclical and dependent on the growth of the economy and improvement in infrastructure. Factors like increased public spending, favorable interest rates and general improvement in per capita income points towards higher demand for automobiles in the future. Also, government's initiatives in the infrastructure sector such as the Golden Quadrilateral project and NHDP (National Highway Development Programme) is likely to give boost to four-wheeler sales especially CVs. Just to put things in perspective, we expect CV segment to grow by 8% to 9%, 2-wheeler demand to increase by around 12% to 15% and passenger car sales growth at 10% to 12% in FY08. This is a positive for auto ancillary manufacturers.

In the long term, the growth of this sector will depend partly on pace of indigenisation levels across all segments. The prospects look bright as most companies are increasing the indigenous components, in an effort to reduce their currency losses and remain competitive. Given the fact that many global players are launching models through the CKD route, there is a fair chance that domestic ancillary manufacturers will witness faster growth going forward. Also, the fact that auto manufacturers like Ford, Hyundai and Maruti are exporting cars, prospects look encouraging.

In the future however, auto ancillary companies in India will face tough times, because as competition increases, manufacturers will find it difficult to increase prices and will try to cut costs. This will put pressure on margins of auto ancillary manufacturers. In the near future, companies will need to have manufacturing lines that can be adapted for new models, have strong technology backing, an ability to export to developed markets, market dominance in specific products and a growth plan driven by volumes and product innovations. Companies will have to focus on quality and abide by delivery schedules if they want to survive. As manufacturers sourcing components are keen to get components from fewer sources in future, as compared to what is happening currently, this will lead to consolidation in the sector. Many players have to face extinction, bulk of them in the small-scale sector.

The growing number of Free and Preferential trade agreements being signed by India with countries like Thailand, Singapore and other ASEAN countries will hurt the cost competitiveness of Indian companies as Indian players play significantly higher duties than its Asian counterparts. Therefore, Indian companies might lose out on big orders if the duty structure is not rationalised.