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Wednesday, December 16, 2009

Alliances, local demand drive auto ancillary cos

A bouyant domestic market and a wave of alliances between local auto firms and foreign players is expected to increase business for parts players, even as the outlook for the global sector remains grim.

General Motors and Chinese partner SAIC Motor Corp have teamed up to make small cars and commercial vehicles in India, while Volkswagen took a stake in Suzuki Motor, tapping the Japanese firm's expertise in small cars and dominance in India.

"Whenever such alliances happen there is always value to be achieved at the supply chain level. This would happen over a period of time. But it all depends on how they leverage it," said Vishnu Mathur, Exceutive Director at the Automotive Component Manufacturers Association (ACMA).

Global auto makers view India as a manufacturing haven for auto components due to the cost advantage it offers in casting and forgings and are increasing their sourcing from India.

"The low cost advantage is still there with India. So companies planning to outsource components can take advantage of this," said Vaishali Jajoo, analyst at Angel Broking.

"In the last one year the industry has been relying mainly on the domestic market," Jajoo said.

Successive stimulus packages and a resilient economy has boosted sales of consumer products including cars.

The auto component industry is expected to grow to between $33 billion and $40 billion by 2016 from $19 billion in 2008-09, the brokerage Firstcall India said, adding increased investments in the sector will aid the growth.

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