Auto component companies lost 400 million dollars due to slowdown

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"The price the auto component sector paid in terms of lost profits on account of the slowdown is in the order of USD 400 million," said an auto component sector report from global consulting firm Deloitte.

The losses were recorded during a 24-month period starting April 2007.

And now as domestic demand picks up, auto component suppliers are again finding it difficult to capitalise on the opportunity.

"These suppliers are facing a liquidity crunch as during the good times, they set up a lot of capacity, which later on created strategic rigidity. They were not able to modify product portfolio to cater to change in demand," said Kumar Kandaswami, senior director at Deloitte.

"Since some time now, these companies can't even find the working capital to keep manufacturing going, even though they seem to have done things like slowing down payments and getting their customers to pay faster," said Kandaswami.

The survey was conducted among companies manufacturing engine parts, braking and suspension, transmission and steering, electrical parts and other equipments. These account for about 80 percent of the industry turnover.

According to the Automotive Mission Plan's estimates, the components industry could reach USD 45 billion by 2016.

However, given the current scenario, the sector may witness a spree of consolidations. Negative growth for a lot of companies during the growth was as high as 80 percent.

"Last year there was not much of a difference between the companies who made profits and those who did not. The room for error on various parameters is as low as 4-5 percent," said Kandaswami.

"At least in the short term not many entrepreneurs are going to enter this sector. Margins are low and fresh capital is hard to come by. Till some time back, a lot of players did not want to think about selling. But if things don't change, a lot of them will have to change their mind."