Auto Speedbreak

  • Abhishek Behl
  • India
  • Jun 28, 2013



The prolonged slowdown in the Indian car industry, which witnessed strong growth in the past decade, is having a cascading effect on the large number of auto-ancilliary units in Gurgaon and Manesar – which supply components to many car and two wheeler majors. So acute is the problem that many component makers, particularly smaller ones, are on the verge of closure, or have cut down on shifts, as production schedules have been  slowed down by auto majors. Industrialists in this belt fear that this slowdown could be a mid-term phenomenon; it might take a couple of years for recovery.

A slowdown in the auto sector can be gauged from the fact that every car maker in the country, including Maruti, has been forced to slash production, due to a huge pile up of inventory, as car sales have gone southwards. Maruti had to cut down on shifts/operations not only in Gurgaon but even Manesar, where the hot selling diesel cars are manufactured. 

Manoj Tyagi, President of the Manesar Industries Association, says that almost 50 per cent of the production capacity of component makers is sitting idle due to the slowdown in car sales. A number of units have stopped operations, as orders are not coming – or have reduced the shifts to handle the situation. “This is going to lead to job losses if the situation is not handled in the right way,” he says.

There are around 1,500 small and medium units manufacturing accessories and components for auto companies in this auto hub. These units produce components such as steering wheels, gear boxes, gaskets and rubber items for auto makers, who are increasingly under pressure to cut production, as sales have slumped across the country. A hike in fuel prices, less than expected economic growth, weak salary and job growth have all combined to spike car sales. And the situation has still not bottomed out, said R.C Bhargava in a recent interview, predicting that gloomy days are here to stay for some time for the Indian car industry.

Auto ancillaries in Gurgaon, however do not lay  the blame for all their ills on the current economic slowdown; they are also critical of the government, as well as large automakers, for creating this situation. Colonel R.P Dhawan, a seasoned vendor, says, “Except Maruti, no one makes timely payments, and this causes major stress to smaller players, who do not have the strength to withstand these delays,” he says. The issue of their rising wages, that are not compensated in the prices being paid to vendors, has further compounded the situation. Dhawan says that auto majors are not ready to pay for the rising costs of all inputs; they insist on paying for an increase in raw material cost only. “The government says it has a social obligation to raise minimum wages, but has it thought of how the the entrepreneurs will manage the consequences?” asks Dhawan. The industry also wants flexible labour management policies, so that they can compete better.

A trade union leader says that they are keeping a watch on the situation, and if large scale layoffs take place, they will be opposed. The workers are already hurt by inflation and lack of jobs, and retrenchment will kill them, he says.

Almost 20 per cent of the auto units in Udyog Vihar have gone out of business. “When a company like Maruti cuts production by 15 to 20 per cent, it means that many people will be hurt down the line,” says an industrialist. In such tough market conditions, where large manufacturers are looking to slow down production, cut costs, and are finding ways to reduce costs, the margins of the vendors are coming under severe pressure. Dhawan says that there was a time when a 10 per cent profit margin was considered to be normal, but in the recent years the margins have come down to 2 to 3 per cent, and the number of vendors producing a product have multiplied. “In the current situation even the 2 to 3 per cent is under threat, as most of the auto companies are demanding even lower cost, and threatening to stop orders,” says Dhawan. Instead of cowing down to such demands, he has refused to supply components to such companies, while asking them to pay out his due bills first.

Forget profits, the ancillary units are worried about breaking even, asserts A.K Kaul, an auto component maker, who blames the apathy of the government, as well as the major buyers, for the current situation. The politics of appeasing the increasingly militant trade unions is also being attributed as a reason for this region becoming an unviable auto hub. In fact this increasing aggressiveness has been one of the reasons why some large companies have decided to set up factories outside the state, says an industrialist. When such companies move, the vendors also follow, and this could prove harmful for the local industrial scenario, he adds.

Mahesh Poonia, who owns a unit in Manesar, says, “There is pressure on margins, and it would lead to a wage freeze, incentives will be delayed or reduced, and there will be no salary hikes. The overall morale of the workers goes down as profits plummet.” He feels that the slowdown will affect the four wheeler industry more than the two-wheeler.

The industrialists in this region are also unhappy with the government for failing to provide quality power at reasonable rates. Ameena Sherwani, President, Gurgaon Industries Welfare Association, says that the supply of power is erratic, and the power cost has been increased unilaterally. “The power supplied to this region is the costliest in the country, and it makes manufacturing unviable for small and medium enterprises – particularly those supplying components,” says Sherwani. In her opinion, the slowdown in the auto sector could be a precursor to more labour trouble in the near future. She could be right, as right now it is a lean period for labour in this industrial belt, and their numbers will start increasing after June 15, when most of them come back from their villages in UP and Bihar. Kaul says that retrenchments have already begun, and soon they will be visible, once this starts happening in larger units.”

However, some do not think there will be a labour issue. Poonia says that there is already a 15 to 20 per cent shortage of workers in the Gurgaon-Manesar belt, and there are little chances of retrenchment in the near future. “No company likes to loose skilled and semi-skilled workers, as it is hard to find replacements. We are hoping for things to improve, and will hold on to people as long as we can,” he asserts. This formula may work for the smaller manufacturers, but the medium level units are finding it hard to sustain themselves across the Gurgaon-Manesar belt, says Dhawan. “I had 70 workers at my unit, but now I am working with a staff of 48. If seasoned units like ours are finding it difficult to hold on, the newer companies would be most vulnerable,” he says.

A large number of entrepreneurs are fed up with the policies of the state government, as well as HSIIDC – whom they term as very unhelpful for smaller players. Kaul says that the government should have intervened in favour of the unit owners who were opposing enhancements. MIWA President Sherwani says that the government needs to come up with sops for auto makers, give excise duty rebates, and make loans available at attractive rates, if the industry has to survive in this region. She is also critical of the poor infrastructure created by the government in IMT Manesar. For Dhawan, not only the government, but corporates who procure components, should also be brought under the lens of regulation, and forced to pay timely and adequate prices to vendors. “The big players have two faces-one is the good one, which is shown to the government and public, while the ugly one is for vendors,” he alleges. Citing how payments are delayed, he says cheques are issued for payments, but then held up within the company.  

Ashok Kohli, who runs a unit in Udyog Vihar, foresees no change in the current situation, and warns that no solutions are visible in the near future. “The governments, both at the centre and in Haryana, have gone into election mode, and politics is their primary concern now. So we don’t expect any major policy changes or decisions for the auto industry, though this industry employes almost 800,000 workers in the State,” he says. Kohli says that the health of the auto sector depends on the overall health of the national and global economy. “Once growth is back, and more jobs are created, people will start buying cars – which is not happening right now. Economic growth is the key to revival, and we are hoping for the best,” he says.

Despite the gloom and doom, the majority of the entrepreneurs have strong faith in the future of the auto sector, and observe that this industry has acquired a critical mass. One such strong votary is Aseem Takyar, who is not only an industrialist but also a leading RTI activist of the City. Asserting that the future of the auto sector in this region is not under threat, Takyar says that big buyers as well as raw materials suppliers need to become more flexible in their approach towards small and medium enterprises. “Steel suppliers like Jindal and Bhushan need to help entrepreneurs; and so should the banks and government agencies, by providing easy finances at reasonable rates,” he says, adding that this is critical for survival of this sector. The weakening of the Indian rupee in relation to dollar has also impacted a large number of auto makers, and cars are likely to get more expensive, predicts Takyar. This is going to
further negatively affect the plummeting sales. Sources say that Japanese major Maruti is planning to indigenize the production of all components, owing to the weak rupee. 


Car sales in the country have been going down for the last seven months, and May witnessed almost a 12 per cent drop in sales – so a turnaround is unlikely. The country is grappling with rising inflation, political uncertainty and the recent disaster in Uttarakhand. Even double digit discounts at dealerships have failed to attract customers, due to the poor economic sentiment; and poor sales are leading to inventory pile-ups both with dealers and car makers. Gurgaon-based auto unit owners agree that the industry as a whole is facing problems, but  assert that instead of taking on the challenges together, the big players—including the government—are just pressurising the vendors excessively.

The problem in the auto sector is so serious that almost 4,000 to 5,000 vehicles are allegedly being surrendered by buyers as they are unable to pay the instalments.



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