Earlier this year, ratings firm Fitch had assigned a stable outlook for the Indian automotive component sector for 2012. The reasons, as per the report, were increased demand for the localised content by OEMs, given the current cut-throat competition in the price-sensitive market and the depreciating value of rupee making made-in-India components more viable globally. The latter would not only boost the exports of auto components from India but would further escalate domestic demand as the OEMs would cut down on costlier component imports. This big opportunity is undoubtedly accompanied by a bigger threat of the widespread availability of counterfeit parts as it has managed to keep the apex industry bodies such as ACMA and SIAM on their toes.
This critical issue was again highlighted by the Confederation of Indian Industry (CII) at the 6th International Conference on Anti-Counterfeiting & Anti-Piracy held in Mumbai on September 7.
The automotive session witnessed a healthy discussion between the delegates and panel members – N S Shenoy, president and MD, PRS Permacel, SachinPuri, VP, Anand Group – and was keenly moderated by Rajesh Bagga, VP – legal, Tata Motors.
Growing at five percent per annum, the size of the global aftermarket is expected to cross US$ 1 trillion (Rs 5,564,000 crore) this year. As per ACMA estimates, the size of the Indian auto aftermarket is touching Rs 33,000 crore. This domain includes the component business which contributes around Rs 24,800 crore. This can be further fragmented into two-wheelers occupying the largest share of 49.7 percent while passenger vehicles, commercial vehicles and three-wheelers comprise 24.7 percent, 23.1 percent and 2.5 percent respectively.
Brand attack
In terms of volumes, of all auto components used across India, 41 percent come from OEMs and OE suppliers (OES), 36 percent are counterfeit and the remaining 23 percent supplied by the other manufacturers and importers. Going by these figures, it is understood that maximum counterfeiting exists in two-wheeler parts and spares, especially the ones belonging to the largest-selling bikes and scooters which are easy to replicate and locally manufacture. Counterfeit aggregates related to the powertrain, the most expensive component in any vehicle, oil and air filters, bearings, piston and piston rings, lubricants and many others are commonly available. Shenoy describes this threat as ‘brand attack’.
According to him, any form of action taken to attack a brand with the implicit purpose of spoiling its image and deriving the brand of its legitimate and due profits is called as brand attack. This can be in the form of a pass-off, a lookalike, mere substitution, duplication, tampering or counterfeit.
He, however, prefers to call counterfeiting as the highest level of brand attack as a counterfeit is a near-perfect copy which can bypass most checks until caught by highly trained and experienced eyes/processes. “The OEMs and component manufacturers face brand attack ranging from 15-30 percent and 5-50 percent respectively,” says Shenoy, admitting that these figures are based on the verbal feedback of over 100 manufacturers. He also underlines that the menace of counterfeiting remains immeasurable as there is no authentic procedure of estimating exact losses and margin erosion.Need for government intervention
The primary reasons identified by the panel during the conference for widespread counterfeiting included cheaper price points of spurious parts, higher margins for resellers, mass availability, difficult identification and lack of awareness about the after-effects. Puri calculates that the producers and suppliers of counterfeit components evade multiple taxes by up to 30 percent, making them cheaper and offering higher margins to the resellers.
According to ACMA figures, the counterfeit parts market constitutes a yearly loss of Rs 31 billion to the government besides causing the employment loss of over 1.15 million jobs and additional consumption of 109 million litres of petrol and 8 million litres of diesel per year.
Puri believes that the increased proliferation of counterfeit parts is too deep-rooted to be solved without due government intervention as the easy-to-replicate spares are locally produced while the ones requiring substantial investments and technology are dumped into the national boundaries mostly from China, Taiwan and Thailand. These imported counterfeits are locally packaged for authentic appearance before they are put into the widespread supply chain. Nevertheless, to make matters worse, the operations of the counterfeit industry are far quicker as the spurious products are available in the market before their original versions and on a larger scale too.
Though ACMA and SIAM have been suggesting thoughtful amendments in the existing legislations such as re-orienting the Motor Vehicles Act by laying down standards for auto components and considering the manufacturing, packaging, selling, stocking of spurious components as a serious and non-bailable offence, the counterfeit industry continues to grow as government actions are yet to take some worthwhile shape. Meanwhile, the industry bodies carry on with initiatives such as raids, Asli-Naqli campaigns, road shows and educational programmes to fight back.
Shenoy, on the other hand, believes that the OEMs and OESs should own up responsibility and locate their peculiar brand-protection solutions. Explaining the general conservative approach of the OEMs and OESs, he says “the cost of solution drives the decision-making process over proven effectiveness which delays addressing the problem efficiently.” Quoting an example of Kavach, a four-step solution created by his firm to protect its brand which follows the principle of identifying a correct currency note, he elucidates that manufacturers can devise similar solutions.
Kavach follows four steps of identifying an authentic component beginning with simple visible features to confirming authenticity by consumer involvement (touch and feel). The solution further includes usage of special devices for authentication and, lastly, recognising the forensic features which could be done by experts to trace the counterfeits. Shenoy adds that OEMs and OE suppliers should focus more on educating their end customers about identifying original parts. .
Figures released by ACMA highlight that currently 60-70 percent of market share of servicing on-road vehicles belong to unorganised garages; this is a huge challenge to curb the supply of fake parts. Only 15-20 percent belongs to OEM-authorised service centres. As suggested by the industry bodies, OEMs are gradually devising adequate accreditation process to identify these outlets which are substantial resale points of spurious spares and setting basic standards of the supply of aftermarket components.
As per ACMA estimates, the share of unorganised garages would reduce to 45-55 percent while the share of the OEM-authorised service centres would be 20-30 percent by the year 2017. To name a few, OEMs such as Maruti, Hyundai Motor India, Tata Motors and Hero MotoCorp are taking active steps to tackle this threat.
AMIT PANDAY