“It (industrial growth) is a good sign and it is a process of recovery.  We are hoping that when the final figure for the second quarter (July-September)is available, there will perhaps be some higher growth.”

Finance Minister Pranab Mukherjee

“I think that the industrial production number clearly indicates that industrial recovery is well on the way. I would expect the industrial output to grow 7.5 percent to 8 percent and the GDP (gross domestic product) to expand by 6 percent to 6.5 percent during the current financial year.”

Prime Minister’s Economic Advisory Committee Chairman C. Rangarajan

What may be of note to some is that domestic demand is the key driver to this surge as exports continue to be sluggish.  The global meltdown has left both Europe and  the USA lagging in manufacturing demand and is strongly felt in the local market as exporters have seen dramatic drop in demand over the last year.

My ministry is examining the feasibility of having a separate scheme that can facilitate financing to the sector, as most small and medium auto component enterprises rarely have the means to raise the required resources on their own

So far I have not been able to find anything on the web on details.  Should be an interesting plan which would be very well accepted in the auto manufacturing sector which hasn’t seen too many bright spots this past few months.

Another interesting point made in the article came from Satyanarayana Dash, Secretary, Ministry of Heavy Industries:

The future of the automotive industry is in small and compact cars and since India has the potential of emerging as the global hub for small cars, the industry should focus on investing in skill development and innovation to sustain their competitive advantage.

Well most in the industry have had a good feel for that for some time now.  Its encouraging to see that the government has noticed it.  The big question is if the ministry will move beyond rhetoric.

Link: 49th SIAM Annual Convention

With the high import duty costs localisation is a priority for most car manufacturers given the manufacturing infrastructure available in India.  Fiat India plans to manufacture the Punto at their Ranjangaon plant near Pune.  The production of the Punto would no doubt help develop local manufacturing with 70,000 cars planned for 2010 and 2 lakh cars planned for 2016.

Some information about Fiat India:

• Fiat India Automobiles Limited (FIAL), a 50-50 Industrial Joint Venture between Fiat Group Automobiles S. p. A., (Fiat) and Tata Motors Limited (Tata), employs about 2207 blue & white collar employees and is located at Ranjangaon in the Pune District of Maharashtra.
• FIAL’s manufacturing facility at Ranjangaon is capable of producing 200,000 cars and 300,000 engines, besides 3,00,000 parts & accessories. Currently manufacturing the Palio Stile 1.1, 1.3, 1.6 models, Linea and now the Grande Punto. The facility also manufactures Fiat’s successful 1.3 litre Multijet diesel engines and 1.2 & 1.4 litre Fire gasoline engine.  Apart from Fiat cars, the facility will also produce Tata passenger and next generation cars with investment exceeding € 650 Million. The plant provides direct and indirect employment to more than 4,000 people.
• By the end of the year the facility is expected to start manufacturing Tata Motors’ new sedan built on the ‘Vista’ platform.
• Fiat Powertrain Technologies, the Powertrain facility at Ranjangaon has an installed capacity to produce 200,000 1.3 diesel engines, 100,000 1.2 & 1.4 petrol (FIRE) engines and 300,000 transmissions. All these products are assembled on state of the art assembly lines which have a high level of automation for all critical operations.  Testing of the engines and transmissions is carried out on Cold Test benches which, besides performing in depth checks not easily achievable in traditional Hot Tests, are also environmentally friendly.
• Machining of critical components like cylinder block, crankshaft, cylinder head, cam carrier, transmission shafts and gears is done on the latest CNC machines with a very high degree of accuracy and automation. Sophisticated inspection equipment ensures that the quality of the components is of the highest level.
• Engines and transmissions are coupled to form Powertrains, which are supplied just in time to the car plants.

Citing a drop in global demand for cars from 68 million cars in 2007 to 54 million in 2008, Colin Dodge, Executive Vice-President, Nissan Motor Company, Renault’s decision to ‘suspend’ its plan for a production line at the upcoming facility should be read in this context.  “Renault is very much there in the venture. They will come back to have their production line,” he said.  The Oragadam venture would have flexibility to make products on three platforms — A segment cars, B segment products and light commercial vehicles.

India, according to Kiminobu Tokuyama, President and CEO of Nissan Motor India, will see largest capital investment from the auto major in 2009. The company had drawn up a 350 billion yen global investment plan. Nissan would launch nine models in India by 2012, including five India-made models. At the moment, it had only two models. In the current year, it would launch 370Z, X-Trail and Teana in India.

The Oragadam project promoters had committed an investment of Rs. 4,500 crore over a seven-year period from the MoU (memorandum of understanding) date of February 2008. Initially, the unit would churn out two lakh units, which could go up to four lakh units at full capacity. Over 20 suppliers were also expected to house their units in the suppliers’ park that was coming up adjacent to the car project, they said.

Source: The Hindu – Work Apace at Nissan’s Oragadam Project

Meanwhile, Mahindra & Mahindra has reviewed its plans, while Renault and Nissan continue to be fully committed to their industrial development plans:

• M&M will utilise capacity available at their Chakan plant and other existing plants to meet its medium term requirements and hence shall not participate in the joint plant at Oragadam.
• Mahindra shall continue its Mahindra Research Valley (MRV) at Chengelpet and MRV test track and tractor plant plans in Oragadam.
• It shall simultaneously evaluate a new automotive plant at Oragadam to further enhance its capacity. The Chakan plant owned by Mahindra will manufacture Mahindra as well as Mahindra international truck products.
• Renault and Nissan maintain their development plans for the creation of a new industrial plant in Chennai. They maintain their long term commitment to India, with local development including design, engineering, component outsourcing, manufacturing, etc.

The company has plans to raise $200 million for a new engine factory and another chuck of change for a powertrain plant among other things.  The company is confident of raising the money according to Nick Reilly, President of GM Asia Pacific.    GM also has plans to roll out five new models in the next two years.   GMI is planning to launch two cars in the Spark segment to tap into the compact car segment which is the domain of Maruti (WagonR and Ritz) and Hyundai (Santro).  GMI also has plans for a sedan (Cruze) based on the Optra platform.   The Tavera is also slated for an update.  The company also has plans to tap into the CNG and LPG alternative fuel vehicle market.

Three autoparts makers, working closely with the company for the new cars, said two cars will be launched as per schedule this year, and that GMI has asked them to adhere to the deadline for delivery of critical components. “While the company has sufficient funds to roll out new models for this year, there could be uncertainty over the new small car and other products next year,” a Delhi-based vendor said.

All of this could be an elaborate PR effort to shore up consumer and supplier concerns.  It is yet to be seen on where the company plans to find finance sources.  Adding to the barage from the GMI public relations machine was news that mentioned plans of offering a Rs 4 lakh small car by the end of 2009.    General Motors India President and Managing Director Karl Slym told reporters that the small car, which will be developed on GM’s concept car Beat platform, is to be manufactured exclusively at GM India’s Talegaon facility for serving the domestic as well as export markets.

“As of now, the mini car will be manufactured in Korea and India. From India, we are also planning to export to the Asia Pacific region and European countries, which could start by 2010,” Slym said.

When asked about the company’s sales target for the current year, Slym said it would maintain last year’s growth (which was 10 per cent) despite GM India’s sales falling in the first five months of this year.

A healthy and financially viable GMI is good news for the Indian manufacturing industries.  The new investments to be made for the engine and powertrain plants is welcome news.

Companies all over seem to be floating a figure anywhere between 30% – 50%  reduction in order intakes and corresponding metrics.   The industries worst hit by the recession are the automobile industries and their ancillaries.  This has resulted in a snowball effect that directly affected all verticals that act as suppliers to the industry – iron & steel, transport, raw materials,  etc.   Most plants were effectively closed for months of November and December with some activity reviving in January.

This March  the India manufacturing industry is showing signs for optimism despite the overall gloom.  Granted this isn’t a complete revival but for those in the nuclear, aerospace, wind energy and a few commercial vehicle segments – there is extensive scope for manufacturing activity still.  To be sure areas like  power generation, which include wind energy and diesel gensets, never really felt the recession to the full extent.  Demand has been quite good even in these times.  Parts production for nuclear power has also been an interesting area.

In the commercial vehicle segments, Volvo and Ashok Leyland seem to have their hands on something special.  Demand for Volvo buses has been positive and Volvo India has published a positive outlook for 2009.   Volvo is planning to increase production capacity by 25% based on repeat orders from major State Road Transport Corporations. Coupled with the central government commitment to build up transportation needs this has given Volvo a lot to be happy about.

The Visionary Leaders for Manufacturing (VLFM) Programme as it is called is focused on meeting this requirement by developing at least 200-250 Visionary Leaders in India in the next two years. It is designed to be the most advanced and innovative management education system especially devised for creating the future leadership. The VLFM is a national programme to develop Leaders in Manufacturing under the Indo-Japan Cooperation Agreement 2006, signed by the Prime Ministers of India and Japan. It is a partnership between the Indian Industry, Academia, the Indian and the Japanese Government. The collaborating institutions include:

* National Manufacturing Competitiveness Council, Government of India
* Japan International Co operation Agency, Japan
* Ministry of Human Resource Development, Government of India
* Confederation of Indian Industry
* Indian Institute of Technology, Kanpur
* Indian Institute of Technology, Madras
* Indian Institute of Management, Calcutta
* Japan External Trade Organisation, Japan
* The Association for Overseas Technical Scholarship, Japan

The faculty for the programme includes Chief Advisor, Professor Shoji Shiba – an international expert in TQM and Breakthrough management, industrial experts in the form of Visionary CEO’s and experts from Deming and TPM awarded companies and leading faculty from IIT Kanpur, IIT Madras, IIM, Calcutta and CII counselors.  Prof Shiba is Professor Emeritus, University of Tsukuba, Japan and Advisory Professor, Shanghai Jiao Tong University, China. He was also the Adjunct and Visiting Professor at MIT from 1990 to 2004. In 2002, he was awarded the Deming Prize for Individuals and was nominated as a member of the International Academy for Quality in 2003. For his contribution of over two decades, the President of the Republic of Hungary conferred upon him in 2006, the Grand Cross Order of Merit of the Republic of Hungary, the highest decoration for a foreigner.

The programme has five modules – each being of three days duration – covering philosophy, innovative product/business development, operations, and marketing strengths. The first module was held at the CII Naoroji Godrej Center of Excellence in Mumbai from September 26 – 28, 2008. Two mentors from the academia and five from the industry spent these three days with participating SMEs helping them define their goals and build a road map to achieving these goals.

Having joined the VLFM Community, the participating SME’s have access to a pool of over 150 VLFM practitioners created over the last one year. Members of the VLFM Community follow a give-give philosophy and are committed to transforming India’s manufacturing sector. For example, the alumni of the VLFM Programme have already started diffusing their learnings within their organisations and amongst their suppliers, expanding the VLFM community and benefiting a larger number of organizations.

It is hoped that the VLFM programme will have the same effect as the now successful CII Cluster Programme which resulted in companies like Sona Koyo transforming themselves into world class organisations. Speaking on the occasion,  Prof. Shoji Shiba who has decided to participate in the transformation of Indian Manufacturing towards becoming more competitive and to create a unique ‘Indian Way’, said:

“Normally, when we are creating history we do not realize it.
This is a day when the Indian industry, academia and the government
have shaken hands for the development of the nation.”

Four different courses are being planned under the VLFM Program  to meet the needs of a cross section of the manufacturing industry:

1. Programme for Visionary CEOs in Manufacturing
2. Programme for Visionary Corporate Leaders in Manufacturing
3. Programme for Visionary Managers in Manufacturing
4. Programme for Visionary Entrepreneurs from Small and Medium Enterprises

These programmes are being designed based on the results of a nationwide survey conducted by CII under the aegis of the National Manufacturing Competitiveness Council (NMCC).

According to a Frost & Sullivan report in the Financial Express, global original equipment manufacturers (OEMs) are looking at India as a low cost source for their manufacturing;

With some part of each vehicle of the world having some touch of India, the ‘India as a brand in engineering’ is making headway, thanks to global original equipment manufactures (OEMs), who in a catch 22 situation are looking at low cost destinations like India as outsourcing hubs.

The Indian automotive engineering services outsourcing industry is expected to grow at a compounded annual growth rate of 32% (CAGR) by 2012-13. “The industry has generated revenues to the tune of $500-600 million last year and there is $2.2 billion potential outsourcing opportunity in the next two years,” said VG Ramakrishnan, director, automotive & transportation practice, Frost & Sullivan talking at the “Opportunities in the Automotive Engineering Services Market” seminar here.

To be sure the report is talking abou the engineering services industry which is a separate entity from the manufacturing sector. Engineering services are fast becoming the domain of software heavyweights like Satyam who are looking at manufacturing for new growth areas whose Satyam Ventures caters to the automotive engineering services market. In their sights is a piece of the approximately $130 – $140 billion global automotive R&D pie. Potential for smaller players to get involved in this market is an area to be looked at.

The interest for local manufacturing is the opportunity for business once these outsourcing initiatives convert to local manufacture some time in the future. At the moment the large players are in some way already in on the action. Local players are at this stage poised to benefit once global OEMs begin exploring sourcing of parts and assemblies from the Indian market. The SME segment in particular has taken a beating in the recent downturn and it is hoped that the new opportunities will offer some potential for business.

ACMA was among the more vocal players on asking for intervention by the government to curb rising prices. According to ACMA President Sanjay Labroo, the component industry risked losing share both in domestic and international markets unless the government intervenes to control rising steel prices.

In response to the industry it has been heartening to see the government take steps to reduce steel prices as was evident when the country’s top steel producers, Tata Steel, SAIL and Jindal Steel, on Thursday decided to roll back the prices of long steel products, including construction-grade TMT bars by Rs 2,000 per tonne. The reduction in steel prices is part of a package brokered by the Steel Ministry with the major steel producers.

The steel companies have also agreed to address the issue of supply constraints resulting in higher prices of steel. The main steel producers would now import the requirement of intermediate products like hot-rolled (HR) coils under advance licensing scheme for producing high-grade steel and GPGC sheets, colour coated steel and cold-rolled (CR) coils.

“This is expected to unlock an additional two million tonnes of HR coils in the domestic market that would other wise have gone into producing high grade steel meant for exports,” steel secretary R S Pandey said after the meeting with steel producers. The meeting was attended by representatives from Tata Steel, SAIL, Jindal Steel & Power, JSW Steel, Essar Steel, Ispat Industries, RINL and Bhusan Steel.

The companies have agreed to increase allocation of steel for small-scale industries corporations by 20% from a level of 5 lakh tonne to 6 lakh tonnes. This would improve the availability of steel for the SME sector downstream industries. Moreover, the companies have also agreed to bear a cost of Rs 400 on per tonne transportation of steel to this segment apart from Rs 500 per tonne subsidy available from funds of joint plant committee (JPC). Similarly, package has also been worked out for tiny units requiring one, two or three tonne of steel.

Its a matter of time of course before we see if these measure bear any fruit in terms of relief to the industry. Of concern is the fact that the price of pig iron – a key input to the casting industry – continues to rise. Many components in the auto industry are made of cast iron and component manufacturers continue to be under stress.

Bucking the trend Hero Honda sales went up 4.31% for September 2007 with sales of 314,537 units against 301,577 units sold last year. In contrast Bajaj Auto’s sales slid by 23% in September – selling 232,496 units against 300,141 last year. TVS sales fell 29% against last year – selling 115,091 units.

The bulk of the volume is in the 100 cc segment. Bajaj Auto and Hero Honda make up for the majority of the 7 million unit motorcycle market. Bajaj Auto’s offerings for the 100 cc market – the Platina and CT100 – have slumped whereas Hero Honda’s aggressive pricing enabled models like their CD Deluxe to grow by 23% and grab a larger share of the market.

Bajaj is counting on their 125 cc XCD to replace their 100 cc offerings and help generate volumes. Meanwhile the 150 cc CBZ Xtreme has already increase volume and market share for Hero Honda in the 150 cc segment. TVS sold 61,100 scooterettes this September, up from 55,228 units last year.

Hero Honda’s sales have marginally reduced for the April – September period. Sales are slightly down by 0.27% – producing 1,522,530 units against 1,526,669 units last year.

The two wheeler market in India is specially vulnerable to interest rates due to the customer base for whom the interest burden is around 22%. As interest rates soared customer demand quickly dried up. Two wheeler manufacturers and their suppliers, many of whom are from the SME segment, have felt the pinch. The CII in it’s recommendations for the mid term review of the Monetary Policy 2007 – 08 recognized the need to reduce interest rates.   The expectation is that prime lending rates should be reduced to 12% from 13.25% which is the current level of interest.