India File

Auto sector slowdown: The story of auto-component makers

LN Revathy / G Balachandar/ Jinoy Jose P / Radheshyam Jadhav | Updated on August 27, 2019 Published on August 27, 2019

Whether it’s Coimbatore, Pune or Chennai, auto-component makers have hit a speedbreaker. BusinessLine reports

Serving tea at a chai shop keeps Bukari busy these days. The lanky youngster, probably in his mid-thirties, is rather tight-lipped as he went back and forth serving tea and washing glasses at the roadside tea stall on the outskirts of Coimbatore. He was a cleaner in an auto components manufacturing unit. The tea-master tells us that Bukari is among the job-loss victims in that area.

“A good number of workers who had migrated to this industrial hub to eke out a living are now on the street. I’ve known him for long. He dropped in at the stall one morning about 3-4 weeks back, offering to do any chore that would fetch him at least one-meal a day,” says the shop keeper.

Industry owners — be it in construction, textiles, auto components or services — concede to targeting migrant workers before downsizing redundant staff and temporary hands. Though most auto parts makers maintain that they have cut production by 35-40 per cent over the last three months (with respect to their earlier levels of capacity utilisation), they continue to state that there have been no job loss yet. “We are considering, as our utilisation levels have dropped. Issuance of pink slip is a risky proposition; we cannot push them hard,” says the owner of an auto-component manufacturing unit, adding that skilled workforce is hard to get.

“The situation is dire,” says K Ilango, MD, RSM Autokast, an auto parts maker in Coimbatore. “The slump in the automobile sector has hit thousands of component manufacturers. We survived the 2008 global meltdown, but this is starting to cripple the industry. It came all of a sudden after the bull run for five years,” says Ilango.

Industry insiders attribute the present crisis to the lack of support by banks to the NBFCs, high GST rate and improper implementation of the unified tax system, and the e-vehicle policy. “It plays on sentiments. The government should look at a gradual transition,” says a past president of the Coimbatore District Small Industries Association (Codissia), on the push for e-vehicles.

While the relatively smaller units have been fighting for survival, some bigger players such as Sakthi Auto Component have started to de-risk their domestic market exposure by looking at markets abroad. “The trend is bad; We don't see light at the end of the tunnel,” says Sakthi Group Chairman M Manickam.

Losing fast

In Chennai’s Guindy industrial estate, things are no different. Ratnavel and Lakshmi would never bother about what it meant to be a contract worker. “We serve all workers here,” says the duo that runs a small snacks-and-tea stall. But of late things have changed. “We were forced to stop offering credit to contract workers,” says Ratnavel. “Because a lot of them stopped coming to work just like that.” Lakshmi says it is risky to give food and snacks on credit to “contracters” (sic) as these workers were among the first to be fired by the small factory units they worked with.

“Auto parts makers are facing a serious crisis in the country today,” says G Sukumaran, General Secretary, Centre of Indian Trade Unions (CITU) in Tamil Nadu. “Several thousands of workers have lost jobs already in Chennai alone, and many thousands are facing the axe across Tamil Nadu.”

With the Automotive Component Manufacturers Association of India (ACMA) estimating job cuts to the tune of nearly 10 lakh, given the general lull in consumer spending, the industry is preparing for one of its worst periods in recent times. The auto parts industry contributes 2.3 per cent to India’s GDP and employs more than 50 lakh people.

A top official of a foundry company said the last three or four months were really bad for the industry. “We were under tremendous cost pressures. Production holidays had to be undertaken to avoid job losses. We hope things will start improving in the coming month with the Finance Minister’s clarification on the registration of BS-IV vehicles,” he adds.

“Most of my colleagues have been asked to stop working. In fact, several factories in our area (Padi) are running below capacity and work hours have been cut down drastically,” says Pa Ganesh who works with an ancillary unit in north Chennai.

P Kaniappan, Chairperson-Southern Region, (ACMA) and MD, Wabco India, which makes safety components for truck and bus industry, says new axle load norms, which came into effect last year, are one of the key reasons for the slowdown in commercial vehicle (CV) sales. “The increased axle load norms had created a huge capacity in the market and that was not supported by the economic activity. The demand was also affected by the poor credit availability on the back of NBFC issues,” he says. With the new axle load norms, the capacity had gone up suddenly by 20 per cent in the market. But the freight was not there to utilise this new capacity. Along with that, other general economic issues also impacted the CV sales.

“Actually, the slowdown started from Q3 of last fiscal. But the companies started inventory corrections only in the last two or three months as the demand scenario really turned worse. So, companies resorted to production delays and reduction in temporary workers to align the inventory with the current levels,” Kaniappan says.

There are many other pressing issues as well, says CITU’s Sukumaran. “The Centre’s new EV policy has rubbed salt to the wounds. Consumers are now confused.” Agrees ACMA’s Kaniappan. “The major issue was the lack of positive sentiment.” But he feels things might change soon. “Now with the Finance Minister’s measures, sentiments will definitely change. The onset of monsoon will also help demand revival in the auto sector.”

The same confused mix of despondency and hope is visible in the twin cities of Pimpri-Chinchwad located 15 km from the Pune city centre. There are no signs of preparations for the annual Ganesh Chaturthi festival, which begins on September 2.

The region is one of the country’s largest auto component hubs. It houses units of Tata Motors, Mahindra & Mahindra and Bajaj Auto and international auto majors like Volkswagen and Mercedes. Maharashtra accounts for approximately 35.1 per cent of the country’s output of automobiles by value and the major components are sourced from Pimpri Chinchwad, Chakan, Bhosari and Talawade.

Getting worse

According to Pimpri Chincwad Small Scale Industries Association (PCSSIA) about five lakh workers are directly and indirectly dependent on the auto industry, and recent slump has shattered the economy of the region. About 12,000 small and medium industries depending on the original equipment manufacturers (OEM) are facing a major crisis with work orders dropping by 25-30 per cent.

“Signs of slump were visible for last six months, but no steps were taken by the government to address the issue,” says Sadeep Belsare, President of PCSSIA. “OEMs are struggling with slump and smaller industries dependent on them, vendors and sub-vendors and allied businesses are facing the heat. Many industrial units have stopped third shifts while others have announced that there will be no overtime allowance for workers. There are no layoffs as of now. But there is uncertainty about the future,” he adds.

Tata Motors recently announced a block shutdown (shutdown of a section/department) in its Pimpri Chinchwad plant.

Santosh Dalvi, General Secretary, Tata Motors Employees Union, says: “Block closures (closure of a department or section) are part and parcel of the industry. This not new to us. Also block closures are a part of our contract signed with the company,” he said. Dalvi fears that blowing out the slump out of proportion would harm the industry and workers.

But says Dilip Pawar, President of Vishwa Kalyan Kamgar Sanghatana, a workers’ union at Bajaj Auto: “This is a temporary phase and companies are trying to exploit the situation and put workers in a tight corner. Workers are ready to cooperate as we understand the situation. But at the same time, companies must not exaggerate the situation and try to get rid of workers in the name of slump.”Pawar adds that the workers were ready to re-skill themselves. “The government is insisting on introducing e-vehicles and we are ready to accept the change and learn new skills. But companies must cooperate with us.”

Need urgent measures

Many workers feel that the festive season will change the situation and demand for vehicles in the market will go up. Prashant Girbane, Director General of the Maharashtra Chamber of Commerce, Industry & Agriculture (MCCIA), the apex chamber of the State, says that the slump was a result of the negative impact of various factors.

Girbane adds that factors such as IL&FS credit issues, the Supreme Court’s decision on auto insurance, the rise in registration charges, India moving on towards BS VI, deadlines for bringing on electric vehicles and delayed monsoon have had a negative impact. “But let’s us not jump to conclusions. We are requesting the Finance Minister to address concerns,” he sums up.

Published on August 27, 2019
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