down is having a domino effect. It has
affected all stakeholders of the indus-
try, and component manufacturers in
particular,” he says. Apart from the
original equipment manufacturers
(OEMs) and component industries,
the on-going slump is also affecting
allied sectors like logistics, dealers
and contract labour suppliers.
“Auto ancillaries produce as per
the schedules of the OEMs. Once ve-
hicle manufacturers cut production, it
ref lects on the auto component indus-
tr y,” says Vinnie Mehta , Direc tor G en-
eral of the Automotive Component
Manufacturers Association of India.
“Unfortunately, the entire industry
is reeling under negative growth, so
everybody in the component indus-
try has a varied level of stress to go
through,” he says.
The effects can be felt far and
wide as the auto industry forms 7.1
per cent of India’s GDP and employs
more than 32 million people directly
and indirectly, according to Minis-
try of Heavy Industries and Public
Enterprises 2017/18 report. The es-
timated turnover of the auto compo-
nent industry alone was above $55
billion in 2018/19.
“The industry generates employ-
ment for 13 persons for each truck,
six for each car, four for each three-
wheeler and one for a two-wheeler.
Every vehicle produced, generates
secondary and tertiary employment,”
the ministry report states. The indus-
try generates employment in OEMs,
which manufacture the vehicles;
in the auto component segment, in
bound (transporting components andsystems to factories) and out-bound
(fa c tor y to dea lers) log istic s seg ment
and in the dealer network.
In Sriperumbudur and Oragadam,
Chennai’s automobile belt and also
called the Detroit of India, the slow-
down is visible. Inside factories, there
is a pall of gloom and talk of job losses.
Major automobile OEMs such as Ford
Motors and Renault Nissan have cut
production. Hyundai Motors is ob-
serving a no-production day once a
week in one of its plants in Chennai,
say industry insiders.
Most auto component makers have
recorded fewer orders from OEMs
April onwards, according to industry
watchers. While the bigger companies
are able to cushion the loss as they
have varied products, after-sales mar-
ket, and more customers, the small-August 11 I 2019 I BUSINESS TODAY I 69WHAT’S HURTING
Poor sales of auto
companies is the main
reason behind auto
ancillary and allied sectors
taking a severe hit
General and component
manufacturers: As large auto
makers have slowed production,
orders for parts have dried up,
forcing component makers to
reduce production or shut
down altogether. Those that
make diversified parts are in a
better position than those units,
usually smaller, that make only
specific parts
Logistics providers: Lower produc-
tion means goods and cars/vehicles
to be transported are less. By one
estimate, the logistics sector is
facing a business loss of 25-35 per
cent. Incentives and other benefits
to employees have been reduced
Dealer network: Not only are they
facing a fall in revenue and margins,
storing unsold inventory has be-
come a problem. From keeping
inventory for a month, they now
have inventory for two-and-a-half
months. Perks and incentives, a
large chunk of salaries of sales
staff, have been cut
Other sectors: Manpower require-
ment has come down substantially,
affecting contract labour suppliers.
Real estate prices in surrounding
areas have also fallen
K. Munisamy, 50, (left) and Kumar, 35, work at a milling
unit of an auto parts maker in Chennai. They are
among the thousands of workers who are staring at
unemployment due to the ongoing auto crisis