HindustanTimes.com

Monday, October 27, 2003

Global auto parts makers eye India, China
Reuters
Tokyo, October 27

When Henry Ford rolled the first Model T frame off his plant in Dearborn
Michigan around 80 years ago, his company made its own steel, glass and
tyres on site.

Now, Ford Motor Co and its arch rival General Motors Corp, have spun off
their parts divisions and are just as likely to buy spark plugs from a
non-affiliated firm in New Delhi or Shanghai as they are from a long-time
partner in Detroit.

As the auto sector struggles to cope with shorter product life cycles, a
growing number of vehicle models, and increased development costs for new
technologies, parts makers are being squeezed to deliver price cuts of
around two per cent a year.

That, coupled with slowing demand in developed markets like the United
States, Japan and Europe, means increased production in low cost centres
like India and China, where production and consumer demand for automobiles
are growing rapidly and where wage costs of 50 cents an hour compare with
$21 an hour in the United States and $2 an hour in Mexico.

"The Asia-Pacific region is the one that has the most dynamic growth for us
right now," said David Wohleen, president of Delphi Corp's electrical,
electronics, safety and interior section, in a recent interview with
Reuters.

This is good news for players like Shanghai Automotive Co Ltd, China's
largest listed car parts maker and a member of local auto group Shanghai
Automotive Industry Corp Ltd.

The company teamed up with the world's top parts maker Delphi five years ago
to create Shanghai Delphi Automotive Air Conditioning Systems, China's
biggest auto air conditioner maker.

"The tier one suppliers are mostly joint ventures so these are the ones most
likely to win as they have the financial and technological backing," said
Angela Gu, senior associate, at Automotive Resources Asia.

Investors are along for the ride. Shares in Shanghai Automotive, which
supplies parts to Volkswagen and GM's China joint ventures, are up 83 per
cent this year to date.

PARTS DEFLATION

Pricing pressures in the auto parts industry have been accentuated by a wave
of consolidation in the auto industry -- seen most recently in the formation
of DaimlerChrysler AG in 1998 -- that has cut the number of global auto
groups to around 10 from 40 in the last three decades.

Delphi, and other global parts makers like Japan's Denso Corp and Ford
spin-off Visteon Corp, are also following in the wake of Volkswagen, GM and
Toyota Motor Corp, who are all ramping up production in China.

China exported around $2 billion in car parts last year, up 80 per cent on
2001, putting it ahead of regional rivals such as India and Thailand, but
still well below Mexico, which exported just under $11 billion worth of
parts last year. The global auto parts market is worth around $1 trillion.
A handful of local suppliers are also making strides.

Analysts' favourites include companies such as Fuyao Group Glass Industries,
which makes sun roofs and windshields and supplies half of the glass for the
country's auto sector.

Thailand, the world's second biggest maker of pick-up trucks after the
United States, is also benefitting as auto makers like Japan's Toyota and
Isuzu Motors boost production there.

Thai Stanley, which has an 80 per cent share of Thailand's auto lamp market,
is seen as one of the winners.

Stanley has contracts to supply lighting equipment to popular models such as
Toyota's Vios, Honda Motor Co Ltd's City, and Ford's Everest.

PASSAGE TO INDIA

Auto makers and global parts suppliers are also stepping up production in
India, attracted by a high-skilled, English-speaking workforce, production
costs around 20 percent less than developed economies, and a rapidly growing
local market.

India's Bharat Forge Co Ltd, Asia's biggest forging company and a leading
maker of crankshafts and axles, is seen as one of the winners.

The company's shares have soared around 150 per cent this year on the back
of booming parts exports to auto makers including DaimlerChrysler, Renault
and Volvo AB.

India exported around $800 million worth of auto parts in the year ended
March 2003, and the country's Automotive Components Manufacturers
Association (ACMA) expects that amount to more than triple to $2.5 billion
by 2009-10.

"There will also be gains for companies like Sona Koyo Steering Systems Ltd,
who have high-end technology collaborations and are expected to export back
to their parent companies who are attempting to cut costs," says Pramod
Anthe, an analyst at the Mumbai-based brokerage, Prabhudas Lilladeher.

Sona Koyo is a joint venture set up by Koyo Seiko Co Ltd, Japan's top maker
of power steering systems.
Rapid growth in China and India could spell trouble for outsourcing centres
like Mexico, where Delphi has around a third of its global operations and is
the biggest private-sector employer with around 70,000 workers.

"There are investment dollars that now have more choices than they had, say
five years ago... That will put competitive pressure on Mexico," says
Delphi's Wohleen.

© Hindustan Times Ltd. 2003.