The Hindu Business Line : ECGC freeze main worry for GM’s Indian suppliers

Chennai, Nov. 26 India suppliers to General Motors who met in Chennai have resolved to stick on to schedule irrespective of eventualities. However, they worry about the Export Credit Guarantee Corporation (ECGC) that froze issue of fresh credit risk insurance (CRI) cover to Indian component suppliers of US auto giants General Motors, Ford Motors and Chrysler.

Sources told Business Line that the vendors would like to continue supplies even in the event of the vehicle manufacturer filing for bankruptcy protection. According to the supply agreement, vendors have to supply even if General Motors filed for “Chapter 11”.

According to ECGC officials, the development was in response to the deteriorating credit rating of the US automobile industry and fears that Indian exporters would face increased payment risks. The freeze is applicable only on fresh exposures and existing customers will not be affected. However, sources from auto component exporters to North America said the existing customers are also affected.

ECGC is a specialised credit risk insurance agency that guarantees export credits against payment risks by importers. Hitherto the agency was enjoying the premium without significant claims. As it is braced for 30 per cent increase in claims for CRI covers this year, it has frozen issue of fresh CRIs. Sources said that it was necessary for ECGC to support, “when there is risk actually.”

Of the total exports from India about 28 per cent is to North America and 38 per cent to EU and 17 to Asia, primarily to Japan and Korea. And 75 per cent is to OEMs and Tier 1 companies.

In 2007-08 the auto component exports were $3.6 billion. The industry which was growing at 24 per cent CAGR for the last five years, dropped to 6 per cent in April- September. The following period was worse and the industry may end this year with growth of less than 5 per cent, if at all. With the slowdown continuing, the credit cycles get extended posing a threat to component manufactures who have created capacities to meet export obligations.

Like the North American companies that are going to the Government for a bailout plan to avoid bankruptcy, exporters feel that the auto component manufacturers should be given some help to keep their nose above water till things change. They feel that ECGC should continue to offer risk coverage. If there is any default the payment should be made with 60 days.