Automotive Components Industry
January 2010


By:     Rahul Razdan            rahulrazdan86@gmail.com

        Ravneet Sah...
Agenda

    1. Market Scenario – The impact of auto crisis

    2. Braving the crisis – Cost Saving / Cash flow measures

...
Market Scenario – The impact of auto crisis
Automotive value chain – Components manufacturers focus on
design to delivery ...
Market Scenario – The impact of auto crisis
Auto component manufacturer have to deal with toppling revenues
and reduced or...
Agenda

    1. Market Scenario – The impact of auto crisis

    2. Braving the crisis – Cost / Cash Saving measures

    3...
Braving the crisis – Cost / Cash Saving measures
   Quick hit measures can provide immediate cash saving, and long
   term...
Braving the crisis – Cost / Cash Saving measures
With pointed and well directed cost reduction measures the
company can in...
Agenda

    1. Market Scenario – The impact of auto crisis

    2. Braving the crisis – Cost Saving / Cash flow measures

...
Growth Strategy for markets – India, China and Europe are different
The impact of the crisis is deeper on the European aut...
Agenda

    1. Market Scenario – The impact of auto crisis

    2. Braving the crisis – Cost Saving / Cash flow measures

...
Growth Strategy for markets – Europe
 The European Auto industry reach the 2008 sales levels only after
 2012, while the s...
Growth Strategy for markets – Europe
The initiatives of operations restructuring in Europe can sustain
business in the sho...
Agenda

    1. Market Scenario – The impact of auto crisis

    2. Braving the crisis – Cost Saving / Cash flow measures

...
Growth Strategy for markets – India
Favorable policies and cost arbitrage will buoy auto component
sourcing to India
Force...
Growth Strategy for markets – India
 Indian auto industry - the growth presents scope for calculated
 measures to gain mar...
Agenda

    1. Market Scenario – The impact of auto crisis

    2. Braving the crisis – Cost Saving / Cash flow measures

...
Growth Strategy for markets – China
 China Automobile market is expected grow due to strong domestic
 consumption and gove...
Growth Strategy for markets – China
 China has a cost advantage when compared to Brazil, Thailand and
 India

Country     ...
Growth Strategy for markets – China
A manufacturer can enter/ accessthe Chinese market using a three-
pronged strategy

  ...
THANK YOU


Rahul Razdan | rahulrazdan86@gmail.com   20
Upcoming SlideShare
Loading in...5
×

Automotive Components Industry

7,198

Published on

This document provides an insight into the global automotive component industry

Published in: Automotive
0 Comments
8 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
7,198
On Slideshare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
0
Comments
0
Likes
8
Embeds 0
No embeds

No notes for slide

Automotive Components Industry

  1. 1. Automotive Components Industry January 2010 By: Rahul Razdan rahulrazdan86@gmail.com Ravneet Sahi ravneet.sahi@gmail.com 1 Rahul Razdan | rahulrazdan86@gmail.com
  2. 2. Agenda 1. Market Scenario – The impact of auto crisis 2. Braving the crisis – Cost Saving / Cash flow measures 3. Growth Strategy for markets – India, China and Europe are different 3.1 Europe 3.2 India 3.3 China Rahul Razdan | rahulrazdan86@gmail.com 2
  3. 3. Market Scenario – The impact of auto crisis Automotive value chain – Components manufacturers focus on design to delivery as per the requirements of OEMs Finance Cost targets Revenue Equipment Manufacturing management Account and IT Marketing, Product Sales and Production OEM Development service demand Orders SCM and Manufacturing Financial Retail and sales support incentives Designs Purchasing feasibility Modules Distributors and parts Accessories Vehicles Dealers Suppliers Vehicle Consumers service Tier I Suppliers Financing Credit & Payments Leasing Tier 2 Tier 3 Sourcing Source: Adapted from Capgemini Consulting; McKinsey Rahul Razdan | rahulrazdan86@gmail.com 3
  4. 4. Market Scenario – The impact of auto crisis Auto component manufacturer have to deal with toppling revenues and reduced orders due a sharp decline in vehicle demands The economic downturn has lead to Global trade and logistical activity has 1 drop in consumer sentiment decreased Sales of cars in Europe and the US has Truck have seen a drastic decrease in fallen in 2008 and it expected to decrease • In developed markets, volumes have further in 2009 2 declined by as much as 25-35% • Dramatic and quick collapse of truck sales worldwide (up to -60%-70%) • Decreased top-line and order books • Risk of clients failure 3 • Cash payment uncertainty Source: Roland Berger; Auto Focus Asia Rahul Razdan | rahulrazdan86@gmail.com 4
  5. 5. Agenda 1. Market Scenario – The impact of auto crisis 2. Braving the crisis – Cost / Cash Saving measures 3. Growth Strategy for markets – India, China and Europe are different 3.1 Europe 3.2 India 3.3 China Rahul Razdan | rahulrazdan86@gmail.com 5
  6. 6. Braving the crisis – Cost / Cash Saving measures Quick hit measures can provide immediate cash saving, and long term savings to be brought in by structural changes 100% 4,143 Structural cost (in INR Cr) transformation Savings 80% Cost heads 60% Variable cost Systemic reduction savings Structural 40% savings 7% 15% 20% 296 Quick hits 0% Timeline Revenue Costs EBIDTA Target… Identification of Attack variable costs cost reduction Re-structure fixed cost heads heads objectives • Increase EBIDTA to • Reduction of non-operating/ • Closure of loss making plants/ adjustment of pre-2008 levels ancillary expenses production footprint • Spend on variable cost • Temporary production stops • SG&A headcount reduction Reach heads wisely and plan • Reduction of purchasing costs • Pay-cuts to employees by 20% Target fixed expenses (re-negotiations) • Reduction of R&D expenses EBITDA strategically • Putting Manpower to • Reduction of indirect plant personnel margins • Create a 8% alternate industries to ensure • Financial restructuring improvement in optimum utilization • Reduction of CAPEX to the minimum EBIDTA margin to 15% Source: Roland Berger Rahul Razdan | rahulrazdan86@gmail.com 6
  7. 7. Braving the crisis – Cost / Cash Saving measures With pointed and well directed cost reduction measures the company can increase the %EBITDA to optimum levels Learning from Auto Component Manufacturers Initaitives • Bharat Forge is planning to reduce to • SONA Group redesigned some of the D INR ~200 Cr. From working capital products which has resulted in 8% O M which gives INR ~20 Cr of interest decrease in through process E saving improvements and value engineering S • No Capital Expenditures in FY 2010 • Product redesign capabilities will T • Emphasis on improving operational extensively be used in future at I C efficiencies such as Yield, Scrap SONA, to products at lower costs than reduction and energy cost the ones developed in Japan or Europe F • Delphi has Closure of 10 plants (mainly • Faurecia has closed plants in Germany O Europe) announced R • Also the company is targeting a EUR • The company has also identified 400 I 200 m improvement in working capital E employee redundancies in Germany requirement G N Source: Live Mint; Economic times; Roland Berger Rahul Razdan | rahulrazdan86@gmail.com 7
  8. 8. Agenda 1. Market Scenario – The impact of auto crisis 2. Braving the crisis – Cost Saving / Cash flow measures 3. Growth Strategy for markets – India, China and Europe are different 3.1 Europe 3.2 India 3.3 China Rahul Razdan | rahulrazdan86@gmail.com 8
  9. 9. Growth Strategy for markets – India, China and Europe are different The impact of the crisis is deeper on the European auto industry, whereas China and India still exhibit growth New passenger car registrations August YTD 2009 vs. 2008 (in’000) Europe China India 37% 10% 10,414 6,226 8.1% 915 830 4,550 9,566 2008 2009 2008 2009 2008 2009 Source: SIAM; Roland Berger; Association des Constructeurs Européens d'Automobiles Rahul Razdan | rahulrazdan86@gmail.com 9
  10. 10. Agenda 1. Market Scenario – The impact of auto crisis 2. Braving the crisis – Cost Saving / Cash flow measures 3. Growth Strategy for markets – India, China and Europe are different 3.1 Europe 3.2 India 3.3 China Rahul Razdan | rahulrazdan86@gmail.com 10
  11. 11. Growth Strategy for markets – Europe The European Auto industry reach the 2008 sales levels only after 2012, while the scrappage scheme may bring short-term comfort Europe Light vehicles sales (in m Units) Scrappage Schemes 20 18.6 19.0 17.5 • Scrappage schemes have been 18 16.8 introduced in almost all major 16 markets 15.1 14 13.8 • Offered bonus: Germany 2,500 13.1 12 EUR, UK 2,000 GBP, Italy 1,500 EUR • Total government budgets: Germany 10 EUR 5 bn, UK GBP 300 m 2006 2007 2008 2009e 2010e 2011e 2012e • European market has seen a very down ward pressure on the sales volume leading to a decrease in the order books of the auto-component manufacturers • Sales would have been even lower if it had not been for the Scrappage Schemes introduced in the EU region • It will take more than 3 years for the demand to revive Source: Datamonitor; CBI Market Information Database; Roland Berger Rahul Razdan | rahulrazdan86@gmail.com 11
  12. 12. Growth Strategy for markets – Europe The initiatives of operations restructuring in Europe can sustain business in the short run and reap benefits by 2014 2014 1. Retaining capacity to 2012 harness when the demand revives 3. Diversification into 2011 Infrastructure and Lifting & Material handling equipments 2010 2. Saving cash by operating at low 4. Expansion into volumes Other European markets Source: Datamonitor; CBI Market Information Database; Roland Berger Rahul Razdan | rahulrazdan86@gmail.com 12
  13. 13. Agenda 1. Market Scenario – The impact of auto crisis 2. Braving the crisis – Cost Saving / Cash flow measures 3. Growth Strategy for markets – India, China and Europe are different 3.1 Europe 3.2 India 3.3 China Rahul Razdan | rahulrazdan86@gmail.com 13
  14. 14. Growth Strategy for markets – India Favorable policies and cost arbitrage will buoy auto component sourcing to India Force 1 – Export potential and proximity to markets: Force 2 - It is a proven base for cost • Total value of exports by 2015 expected to effective manufacturing: reach US$ 8–10 b for vehicles and US$ 20– • India is cost competitiveness in terms of 25 b for components labour and raw material • Proximity to other Asian economies and • Manufacturing costs in India are 25-30% emerging markets like Africa lower than the western countries • Shipments to Europe cheaper than those from Brazil and Thailand Auto component market in India to grow ten times by 2015 Force 3 - Investment Commission has Force 4 - Margin pressures faced by set a target of attracting foreign auto manufacturers in developed investment: markets: • Target foreign investment of USD 15 b by • OEMs and Tier I suppliers in developed 2015 markets facing intense cost pressures • Increase India's share in the global auto • Souring from Asian markets to stay cost components market from the existing 0.9% competitive to 2.5% by 2015 Source: IBEF Rahul Razdan | rahulrazdan86@gmail.com 14
  15. 15. Growth Strategy for markets – India Indian auto industry - the growth presents scope for calculated measures to gain market share in the future Indian auto component industry turnover (USD b) Foreign Companies sourcing from India 2003-04 1.27 Manufacturer Worth 2004-05 1.69 Market to grow Volkswagen AG 1 billion Euros CAGR 2005-06 2.47 10 times in the Renault- Nissan 300 million Euros 29.94% 2006-07 2.87 next 7 years Fiat USD Four million 2007-08 3.62 Ford Motors USD 150 million 2015 (e) 33-40 Daimler Chrysler USD 125 million BMW AG NA 0.0 10.0 20.0 30.0 40.0 • Indian auto component industry is well positioned to capitalise on the growth in outsourcing to low cost countries – Exports are expected to contribute to USD 20-25 B in 2015 to Auto component Industry market (~60%) • Tap into component exports pie by leveraging the foreign market reach through recent acquisitions • Diversify into non-auto components business to increase the revenues and diversify Source: A. T. Kearney; IBEF; ACMA Rahul Razdan | rahulrazdan86@gmail.com 15
  16. 16. Agenda 1. Market Scenario – The impact of auto crisis 2. Braving the crisis – Cost Saving / Cash flow measures 3. Growth Strategy for markets – India, China and Europe are different 3.1 Europe 3.2 India 3.3 China Rahul Razdan | rahulrazdan86@gmail.com 16
  17. 17. Growth Strategy for markets – China China Automobile market is expected grow due to strong domestic consumption and governments recent stimulus packages China vehicles production (in m Units) 15% 9.0 • Chinese auto-component is 23% 5.1 expected to grow to USD 115.6 b 4.2 • The market is expected to grow 2.5 3.1 2.2 at a stable rate of 18% per annum 2003 2004 2005 2006 2007 2011e China Automotive Stimulus Packages • Subsidies to rural residents to trade in old cars for new RMB 5 Million worth ones of subsidies • Lowering fuel retail prices • For research into: RMB 10 Million – Vehicle safety worth of subsidies – Alternate energy Source: A. T. Kearney; KPMG Rahul Razdan | rahulrazdan86@gmail.com 17
  18. 18. Growth Strategy for markets – China China has a cost advantage when compared to Brazil, Thailand and India Country Annual lending rate Country Labour cost (USD/hour) India 10-11% India 0.75 Brazil 13-14% Brazil 4.3 China 5-6% China 0.75 Thailand 7-8% Thailand 0.8 Country Power Cost per kwh (USD) India 0.14 Brazil 0.05 • China is competent with the other economies on low cost labor front China 0.03 • With India it has a overall cost Thailand 0.11 advantage of ~9%, due to lower power and funds costs Source: A. T. Kearney; IBEF 18 Rahul Razdan | rahulrazdan86@gmail.com
  19. 19. Growth Strategy for markets – China A manufacturer can enter/ accessthe Chinese market using a three- pronged strategy Strategy for China Serve the growing automobile market Realize the Chinese cost savings in in China manufacturing components • Tap the two-wheeler customer base • Enter into China through the route of Engines engineering in China, e.g. of Joint venture . Eg. Bharat Forge Loncin Group and FAW • Enter into China by directly investing Sourcing the components from the and setting up a company , Eg. Chinese markets Sundaram Fasteners • Set-up Purchase office in China to source low cost components Source: A. T. Kearney; IBEF 19 Rahul Razdan | rahulrazdan86@gmail.com
  20. 20. THANK YOU Rahul Razdan | rahulrazdan86@gmail.com 20

×