Auto parts shortage spreads beyond tyres

Not just tyres, supplies of many other automobile components continue to be short for domestic vehicle makers.

These include alloy wheels, some engine components, electronic feed and machined components. According to the president of the Automotive Component Manufacturers Association (Acma) Jayant Dawar, it will take anywhere up to six months for the component sector to be able to bridge these supply gaps.

“There is a shortage of capacity in the auto component sector. Recovery from the recession has been more than pleasant... there is a 3-6 month lag on the component side before OEMs can be serviced fully. At present, since the export market is not as demanding as earlier, some export supplies are being diverted to the domestic market,” Dawar told DNA.

Acma’s admission on parts’ shortage follows months of denial by both, component makers and vehicle manufacturers, of any supply constraints. And not only are capacities still to pick up at the component makers’ end, pricing is also becoming a bone of contention for most of these parts.

During the slowdown last year, neither side was arguing on prices since overall sentiment was subdued. But now that demand had picked up faster than expected, component makers want to hike prices on input cost spiral and general inflation but the vehicle makers are obviously not game.

This has led to a piquant situation — especially in the case of truck and bus radials and bias tyres — where supplies are being diverted to the after-market (replacement) while vehicle makers are left high and dry.

Prices in the replacement market have kept pace with supplier ambitions, but OEMs have not been able to offer significantly higher pricing for most parts just yet.

Dawar gave the example of alloy wheels used in motorcycles, where domestic companies are reluctant to put up capacities because of “rampant” dumping of alloy wheels from China. “Cheaper Chinese parts are hurting the domestic component industry like never before….total imports from China increased to Rs 3000 crore in 2009-10 from Rs 2200 crore the previous year!”

So what is the way out? On the one hand, vehicle makers are increasing looking to low-cost import destinations such as China and Thailand for bridging supply gaps in some critical vehicle parts.

On the other, investments and expansion has already begun in the component sector and overall capacities should be significantly higher in the coming months. From 2010-11 onwards, Acma expects annual investments of $2 billion. Many large OEMs have already begun investing — Bosch has committed Rs 1,500 crore in two years, Magna is bringing in Rs 700 crore besides also some of its used equipment from overseas which has been lying idle there. Bharat Forge has also announced Rs 1,500 crore investment.

But unless the parts suppliers and OEMs come to an agreement over pricing, supply constraints would remain.

Already, the government has heeded to one tyre industry lobby and imposed a stiff anti-dumping duty on imports of truck and bus radials from China and Thailand. This may solve the problem of cheaper imports but does nothing to address the severe supply shortage for such tyres from Indian tyre companies.