Staff Reporter | 14 Jul, 2008
As if ever-shrinking profit margins were not enough to give local automobile component makers nightmares, now cheap imports from China threaten to put several component makers out of business.
 
Industry sources tell SME Times that Indian-owned car and two-wheeler manufacturers have planed to import in a big way from China and have even set up full-fledged purchase offices there.
 
However auto companies, defend their in move saying that in these trying times Chinese prices are more competitive.
 
"In some cases, the landed cost of Chinese components is cheaper than the raw material cost of the same component in India," says Mahindra & Mahindra President (automotive sector) Pawan Goenka.
 
Auto component imports from China have grown rapidly in the last two years. From less than 1.5 percent of all component imports in 2003-04, China now accounts for close to 10 percent.
 
A quarter of the growth in component imports has been contributed by China in the last three years.

Meanwhile, India's exports to China have stagnated at around Rs 100-150 crore in the last five years.
 
Auto part manufacturers say that, on an average, parts can be bought 30 percent cheaper in China. Such imports have created new price benchmarks and robbed them of all powers to raise prices on account of higher input costs. And this, they say, has hurt the industry real bad.
 
"The cost of making glass has gone up 50 percent in the last couple of years, but our prices have risen only 10 percent," says Asahi India CEO and Managing Director Sanjay Labroo.
 
His company is the largest automotive glass company in India with a market share of over 80 percent. It reported a loss of Rs 18 crore for the quarter ended March 2008.
 
"The industry is squeezed between large steel makers and automobile makers," adds Shriram Pistons and Rings President Ashok Taneja. The company has been able to recover only three quarters of the rise in its input costs from its customers in the last one year.
 
A recent study of 33 component companies carried out by ICRA shows that their profit before tax fell 19 percent to Rs 285 crore for the quarter ended March 2008 from Rs 351.7 crore in the year-ago quarter. Only five of these 33 companies saw their profit before tax rise during the period.
 
On its part, the Automotive Component Manufacturers' Association had some weeks back taken a team to China to study how components were made so cheap there. "We could understand only half of the price difference," says a member of the team: "The other half we could not figure out."
 
Experts attribute several reasons to it: The huge steel capacities in China, the "under-priced" Yuan, the policy which encourages procurement from local component manufacturers, tax sops on exports, low capital and labour costs etc.
 
Back home, after much pleading from component makers, some automobile companies have informally told them that they will cap imports from China.
 
"One of them told me it will be 20 percent," says Sona Group Chairman Surinder Kapur. M&M has decided that in no product category will Chinese imports exceed 50 percent of requirement. But this isn't enough to calm the frayed nerves of the Indian component industry.
 
"Why import when there is unequal competition," asks Labroo. The industry has started lobbying with the government to impose anti-dumping duty on imports from China. But the long process involved makes most of them not very hopeful of getting a favourable verdict.