Managing business in a time of slowdown

As OEMs and component suppliers gear up for tough times, Autocar Professional asks them what issues they are concerned about and how they are coping. A joint report by Shobha Mathur, Sumantra Barooah, Karthik H and Brian de Souza.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 19 Aug 2013 Views icon5579 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Managing business in a time of slowdown
As the slowdown in the Indian automotive sector deepens with every passing month, OEMs and their suppliers are looking at ways to align falling demand with excess capacity even as they look for ways to keep costs in check as well as be prepared for an uptick should this happen in the third quarter of the current fiscal, as SIAM has forecast.

According to SIAM, production for passenger cars and UVs in April 2013-June 2013 period was 739,146 units, down 10 percent from 812,864 units in the year-earlier period. The decline in production was the highest for cars (by 13.17 percent) and for passenger M& HCVS, down by 9.53 percent. In June, Maruti Suzuki shut its plant for one day in an attempt to align production and demand. Last fortnight, Toyota reportedly said it will idle its Bidadi plant for eight days in the month to reduce inventories. Earlier, Tata Motors rationalised its Pantnagar workforce which makes the Ace. Mahindra & Mahindra has also said it will have a production holiday at its Chakan plant this month to align production with demand.

With no light at the end of the tunnel at present, it currently looks as though the slowdown will continue for some time unless the monsoons that have been good and help generate demand during the festive season. Inventory management, cost savings and manpower rationalisation are now buzzwords. Autocar Professional conducted an e-mail survey across OEs and their suppliers and among the many findings is the fact that despite these tough times, there is optimism about the auto market. One recurring observation is infrastructure which respondents said must be tackled expeditiously. While this survey does not purport to gauge business confidence in the industry, these are what our respondents said:

RAKESH SRIVASTAVA, SENIOR VICE-PRESIDENT, SALES & MARKETING, HYUNDAI MOTOR INDIA



What impact has the current slowdown had on HMIL?

The slowdown has affected vehicle sales. Market sentiments are negative as the buyer’s disposable income has been affected. This has suppressed customer enquiry levels too. Against a large base in the last fiscal year, there has been a sharp drop in conversion of enquiries in the absence of any positive stimulus and sentiments.

We foresee pressure on volumes continuing till macro indicators improve significantly. Despite the economic slowdown, HMIL has been able to maintain its positive market share. Our July 2013 market share was 19.4 percent compared to 19.2 percent in July 2012.

Do you expect to see a turnaround in the October-December 2013 period?

In the coming festive season from Onam to Navaratras and Diwali, we expect the market conditions to improve. We have announced the debut of the Grand i10 which will be positioned between the i10 and i20.

What measures are you taking to cope with the slowdown?

We hope the market will improve as it is a cyclical scenario for any economy. We have been engaging customers pan-India through aggressive marketing campaigns and by offering them convenient sales options and an enhanced buying experience.

Rural markets are a key part of Hyundai sales strategy. These customers have stable incomes and have a strong preference for brands that are tried and tested. Hyundai is focusing on the rural markets (beyond top 110 cities) to increase sales by increasing the number of Rural Sales Outlets (RSO). Currently, there are 270 RSOs and the plan is to increase it to 350 by end-2013-14 supported by a strong service network.

What production-related measures have you taken to manage the downturn?

We continuously review our processes to save costs, without compromising on quality. Every input, be it water, electricity, consumables or other inputs, is reviewed and areas of saving costs are explored.

We have set targets for reduction and have set up a reward system to honour the best ideas. This keeps employees motivated and engaged even in challenging times. Last year alone, we undertook 4,000 projects which resulted in a cost saving of approximately Rs 40 crore. Coupled with our flexible production system which allows us to optimise production for both the domestic and the export market, we have been able to face the slowdown successfully. There has been no change in our operations which continue to operate at full capacity and three shifts (current efficiency is 99 percent).

PIYUSH MUNOT, INDIA MANAGING DIRECTOR, ZF INDIA



What impact has the current slowdown had on your company's business?

ZF has a diverse product portfolio that caters to the auto and industrial segments. This diversity has somewhat helped cushion us from harsh market conditions, especially in the CV segment. Apart from this, the depreciating rupee that has impacted our imports, so we are exploring possibilities for our local facilities to cater to some of our export markets, and thereby to create a natural hedge.

We feel that with a competitive environment and increased customer discretion regarding automotive technology, ZF is well positioned to offer newer and latest technologically for the new generation of vehicles. On the other hand, we are seeing sustained growth in the aftermarket segment.

What production-related measures have you taken to cope with the slowdown in demand?

An immediate measure has been the tightening of our inventory by realigning the production planning according to the customers’ product strategy. We are also in the process of increasing localisation while maintaining the global ZF quality standards for some of our product offerings in order to remain competitive.

Do you think the market will see a turnaround a few months from now?

It is very difficult to predict the turnaround. However, we are hopeful that the festive season at the end of the year shows an uptrend in sales for all vehicle segments

If this does not happen, do you have any contingency plans in place?

ZF believes in the Indian market and its potential. We are confident of overcoming this period well.

What items of expenditure contribute most to your costs at the moment — wages, power, infrastructure or some other? If any other, can you please specify?

The products that we manufacture in India meet ZF global standards of design and quality. So to maintain this, material prices have the highest contribution of our expenditure. As explained earlier, we are focusing on increasing the localisation.

RK BEHERA, CHAIRMAN, RSB GROUP



What impact has the current slowdown had on your business?

In line with the prevailing weak economic sentiment, the automotive segment (comprising of M&HCVs, PVs, LCVs & SCVs) has declined by 5.5 percent in 2012-13 in comparison to 2011-12.

The M&HCV segment, which is the predominant market for our product range, recorded a negative growth rate of 28 percent. The LCV segment declined by 17 percent. The PV (Passenger Vehicle) segment had a negative growth of (6.67) percent. Only the SCV (Small Commercial Vehicle) segment grew four percent reflecting the rising share of the service sector in GDP and the importance of the ‘last mile’ delivery of goods and services.

Also, construction, mining and infrastructure activities in 2012-13 remained subdued due to governmental policy decisions, delays in environmental clearances and land acquisitions. This impacted our company and 2012-13 topline was around 15 percent lower than 2011-12 performance. We were able to contain the decline to manageable level by our timely counter-measures of cost reduction through process improvements and new business addition through market penetration into new customers and products.

Illustratively, our company bagged new OEM business for our main products – propeller shaft and axle beam. We were also able to make market entry with a new product – gearbox – for the LCV and SCV segments. Several steps have also been initiated to improve quality standards in our products which would enable us to increase our share of business in India and allow us to tap opportunities in the export market.

What production-related measures are you taking to cope with the slowdown in demand?

We are focusing on achieving operating excellence by reinforcing TQM (Total Quality Management) and Quality Improvement Programmes across all production facilities. This will enhance capacity utilisation levels and productivity.

Do you think the market will turnaround by the last quarter of this calendar year?

No, I am not optimistic of a turnaround in October-December 2013 onwards. It may well take place in April 2014. India’s GDP forecast for FY 14 continues to be serially reduced by various authorities. Most recently, RBI revised its GDP growth projection for 2013-14 from 5.7 to 5.5 percent.

The performance of the automotive segment in Q1 of 2013-14 continues to be depressing with de-growth of 10.89 percent in comparison to the first quarter of 2013-13. The depreciating rupee is also a huge concern.

For the economy to revert its pre-crisis level of 8-9 percent, we need policies that create enabling conditions for investment revival and demand creation and quickly re-commencing of large infrastructure projects.

If this does not happen, do you have any contingency plans in place?

We are aggressively working to consolidate our position among domestic OEMs in our signature products – propeller shaft and axle beams by getting into new OEMs and also capturing foreign OEMs as customers. RSB is strategically diversifying into products for LCV/SCV segment.

To de-risk the business, we are working towards entering into passenger car products and systems either through the joint venture or M&A route. We also want to globalise our business.

What items of expenditure contributes most to your costs at the moment?

Input materials are one key area.

DEEPAK CHOPRA, CEO, ANAND GROUP



What impact has the current slowdown had on your business?

The slowdown has impacted almost all Anand companies and various segments of the business. Companies with a substantial dependence on the M&HV segment and passenger vehicle segment, where growth has been negative have been affected the most. However, due to our Group’s continued strengths in aftermarket and focus on exports, we expect to grow sales in 2013 by around 6 percent to Rs 6,200 crore, ahead of the industry growth.

What production-related measures have you taken to cope with the slowdown in demand?

We are focusing on internal efficiencies to improve margins. All Anand Group companies are concentrating on several cost reduction and break-even point reduction measures and on value engineering and productivity improvements. Much greater attention is also being paid to conserving cash both by focussing on working capital reduction and capex rationalisation. We are also improving capacity utilisation by enhancing our market share with our OEM customers and expanding in the aftermarket.

Do you agree with the view that the market will see a turnaround in October-December ’13?

I don’t agree. I believe there will be some improvement during the festival season from October 2013 but the downturn may continue for another 10-12 months before we see a recovery.

If this does not happen, do you have any contingency plans in place?

This has been the longest running downturn in the automotive industry in the last decade, having already lasted for around two years. We have already been preparing our people for this and as mentioned earlier, we are concentrating on costs and break-even reduction measures and enhancing internal efficiencies. Also, we are focusing on segments like aftermarket, exports, tractors, SUVs and small and light CVs which have not been impacted so much by the downturn.

What items of expenditure contributes most to your costs at the moment?

Besides material costs, which is the largest, and some other heads of expenditure including power and fuel, transportation and travel costs have been impacted by a weaker rupee.

KIRTI RATHOD, CHAIRMAN & MANAGING DIRECTOR, DELUX BEARINGS



What impact has the current slowdown had on your business?

The slowdown has had impact on all manufacturers as well as Tier 2 and 3 suppliers. Lower sales has affected our cashflow and bottomline. Due to the uncertainities, we are unable to plan new project investment.

What production-related measures have you taken to cope with the slowdown in demand?

We have taken following measures: Control on inventory, focus on system improvement – productivity, OEE, JIT delivery, reduction on PPM at all levels, capacity planning, improved supply chain and low cost automation and Poka-Yoke.

Are you optimistic about a turnaround in the October-December ’13 period?

A good monsoon and higher agricultural output will generate demand for transportation.

I expect a turnaround from January 2014 as the government tries to push through more reforms in the October-December 2013 quarter that will show results in January 2014 onwards.

If this does not happen, do you have any contingency plans in place?

We could reduce the number of working days by one day, run just one shift and reduce temporary staff by 20 percent. If the situation worsens, we may well have to reduce permanent staff also.

What items of expenditure contribute most to your costs at the moment? Wages, power and infrastructure or some other?

Major expenses are salary, power and fuel, finance cost, raw materials

What measures do you take, or have planned, to cope with the business slowdown?

Among others, we plan timely delivery of all orders in hand, improved cash realisations and keeping expenses in check. We will also focus on exports and the aftermarket.

KIRON CHOPRA, CHAIRMAN, CHOPRA RETEC RUBBER PRODUCTS



What impact has the current slowdown had on your business?

Fortunately none as we deal with global automotive aftermarkets and they are slowly reviving. So we are ramping up capacity as our Tier 1 and Tier 2 Clients are pushing us for enhanced volumes.

Do you feel that the market will see a turnaround from October-December 2013?

In the Indian context, I do not see much happening till the government clears the 350-and-odd stalled infrastructure products on which Rs 7.5 lakh crores are riding on. If this is addressed on a war footing, everything else will start moving in the right direction, be it construction, finance, transportation, manufacturing in general and several other service and agricultural-related sectors.

The other serious issue is the current account deficit. Here the answer is more exports. We are a case in point as a company that has not been affected by the domestic slowdown.

Indian products need to be showcased globally and our experience shows that good manufacturing companies from India get more respect and business than their Chinese counterparts when you compare apples to apples, and the overall basket of services provided.

With the dollar in favour of the exporter, this benefit could be further enhanced.

What items of expenditure contributes most to your costs at the moment? Wages, power and infrastructure?

Infrastructure which includes power, roads and ports are our biggest cost deterrents. The transaction costs for exports including customs procedures, paperwork, delays in transportation, port congestion are also high compared to say, China.

ASHWANI G KESWANI, COUNTRY HEAD, OETIKER INDIA



What impact has the current slowdown had on Oetiker India's business?

We are down by 25 percent in sales revenue from the planned budget for 2013. We are quite concerned about the future.

What production-related measures have you taken to cope with the slowdown in demand?

Fortunately, we had experienced a bad 2012 and learnt some lessons. We started to focus on ASEAN market and hence our production has not suffered due to the domestic slowdown. Our China factory is under pressure with increased sales this year and we are supporting them with products from India! What a stark contrast to what we are experiencing in India!

Do you agree with the view that the market will see a turnaround from in the October-December ’13 period?

We are all hopeful for a turnover in H2 of 2013-14. Some stimulus will have to be provided to the auto industry to recover.

If this does not happen, do you have any contingency plans in place?

We intend to increase our focus in ASEAN region and Korea. These exports will help us tide over the domestic crisis.

What items of expenditure contribute most to your company's costs at the moment?

Any new factory is capital intensive to start with and needs volumes to survive. Unfortunately, the situation has not improved and hence all investments made in the plant have not yielded any benefits.

What measures would you take to cope with business slowdown?

We intend to diversify into the non-automotive segment to balance out the risks.

SANJAY WALIA, VICE-PRESIDENT, CORPORATE, MARKETING & COMMUNICATIONS, UNO MINDA GROUP



What impact has the current slowdown had on your business?

We are seeing flat market growth in some segments (mostly passenger vehicles and two-wheeler segments). This is a challenging year but none of our expansion plans have been deferred. As of now, we are focusing on ‘cost efficiency’ and have started looking at other dimensions to increase our topline including looking at the prospects of Brazil and ASEAN markets.

What production-related measures has the UNO Minda Group taken to cope with the slowdown in demand?

Managing profit margins in the prevailing market scenario is tough. We are focusing on cost auditing, reducing wastage, reducing inventory besides improving our processes and leveraging our technical strengths.

Besides, we have developed a few key strengths that can help us cope:

? Effective usage of data management through SAP across the UNO Minda Group.

? With available data, we are able to analyse better on areas of improvements – rejection percent, cycle time monitoring.

? We are able to manage customer schedule fluctuations in an effective way.

Do you agree with the view that the market will see a turnaround from October-December ’13?

Yes we do and we attribute this to the festival season.

What items of expenditure contributes most to your costs at the moment?

At moment, manpower wages contribute the most. We have close to 7,000 employees but this is justified as long as we are expanding as a group. Power costs are major in our die casting businesses.

However, we are taking various measures to control them leveraging voltage maintenance, monitoring power factors and simultaneously testing new power control techniques.

What measures do you take, or have planned, to cope with the business slowdown?

Our team is our most powerful weapon to cope with any obstacles that come our way. We are jointly working to meet the challenges. However, we will stay focussed on existing customers and further strengthen the customer base by building our R&D capabilities.

GIRISH KAMALA, HEAD — KEY ACCOUNT MANAGEMENT (INDIA), CONTINENTAL AUTOMOTIVE COMPONENTS

What impact has the current slowdown had on your business?

Car sales have continued to decline during the first half of the year and component companies have felt the impact of reduced volumes. Since new launches appear to be the tactic most likely to succeed in this market, we are being awarded new programmes which will generate future revenues. Clearly, the participants still believe in the market. What production-related measures has your company taken to cope with the slowdown in demand?

The challenge is to keep our operations lean and our fixed costs competitive. We are paying meticulous attention to material planning and trying to achieve a better balance between production and inventory.

On the HR front, we have undertaken shift optimisation and cross-skilling of our employees to help enhance their overall competence.

Do you agree with the view that the market will see a turnaround from the October-December ’13 period?

We do hope to see a turnaround in the last quarter of this year. We are already seeing a reduction in the inventory pile-ups at the dealers and OEMs. Releases from OEMs are also showing an upward trend.

If this does not happen, do you have any contingency plans in place?

Yes, like every organisation, we do. But we hope, even believe, that we would not need to implement them.

What items of expenditure contribute most to your costs at the moment — wages, power and infrastructure or something else?

All three factors contribute significantly to our expenditure. We expect our ratios to be more or less on par with the other players in the component industry in India.

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