Volkswagen, Suzuki India Customers Wait on Auto-Parts Shortage
Utkarsh Parasrampuria, a Mumbai jewelry designer, has waited about three months to receive his new Volkswagen AG Polo. He’s still not sure when it will arrive.
“This just goes on and on,” said Parasrampuria, 25, who put down a deposit for his 580,000-rupee ($12,400) Polo in May. “I’m seriously considering getting a different car now.”
Suzuki Motor Corp. and Hyundai Motor Co., the two biggest carmakers in India, have also introduced waiting lists on some models as a dearth of batteries, engine castings and other parts forces automakers to curb production in Asia’s third-largest automotive market. Tata Motors Ltd. is importing tires from China after local component suppliers failed to anticipate a surge of more than 30 percent in Indian car sales this year.
“At least for the next three to four months, the problems won’t get resolved,” said Pawan Goenka, head of the Society of Indian Automotive Manufacturers and president at Mahindra & Mahindra Ltd., the nation’s largest sport-utility maker.
Mahindra made 12 percent fewer vehicles than it wanted to in the quarter ended June because of the parts shortage, Goenka said. Maruti Suzuki India Ltd., the country’s largest carmaker, has waiting lists of as much as a month for its Swift and Dzire models. Hero Honda Motors Ltd., the largest motorcycle maker, couldn’t make as many as 80,000 motorbikes in the second quarter, said Anil Dua, the company’s marketing head.
The shortage of parts and a consumption boom stoked by a doubling of per-capita income over the past eight years mean that Indian car buyers face industrywide waiting lists for the first time in more than a decade. Makers of steering wheels, bumpers and headlamps are rushing to boost production and build plants to meet the surge in demand.
“The partsmakers were caught by surprise,” said Deepesh Rathore, India managing director at IHS Automotive. “The loss of sales will lead to a loss of profit for automakers.”
Maruti has asked suppliers to boost investments after facing shortages of bumpers, tires and batteries, Chief Executive Officer Shinzo Nakanishi said. Tata began buying Chinese tires as Indian suppliers couldn’t meet its needs, said Debasis Ray, a spokesman for the Mumbai-based maker of trucks and $2,500 Nano cars.
“The supply of tires has been occasionally disrupted,” said Kurt Rippholz, a spokesman for Volkswagen in New Delhi. “That’s affecting all carmakers, not only VW.”
The carmaker has re-shaped production to better cope with supply interruptions, he said. Hyundai’s India operations have also suffered from the industywide tire shortage, said H.W. Park, managing director of its local unit.
“In India, there is a unique problem of undercapacity,” said Ashvin Chotai, London-based managing director of Intelligence Automotive Asia Ltd. “The entire supply industry has been overcautious.”
The lack of capacity is likely to persist for some time as machines for making components have to be custom-made and then installed in plants, said Sanjeev Varma, a senior adviser at Duff & Phelps LLC in Novi, Michigan, and an ex-DaimlerChrysler AG executive.
Bharat Forge Ltd., whose clients include Bayerische Motoren Werke AG and Ford Motor Co., is boosting capacity for making crankshafts by 10 percent this year, said Executive Director Amit Kalyani. The company, which also makes forgings and transmission parts, is running at full capacity now.
“We didn’t expand last year because of a lack in demand,” he said. “Only this year was demand at a high.”
Nationwide, partsmakers plan to spend as much as $2.5 billion in 2010 and may invest $30 billion by 2020 to boost production, said Jayant Davar, president of the Automotive Components Manufacturers Association of India. Concerns about how much automakers will pay for parts amid rising wages and higher steel costs have deterred investment, he said.
“If we are assured that the pricing will be fair, then the increase in capacity may happen faster,” he said.
Indian passenger-car sales jumped 38 percent from a year earlier to a record 158,764 in July, according to the Society of Indian Automobile Manufacturers. Annual sales may reach 3 million by 2015, doubling from last year, according to the group.
Automakers including Toyota Motor Corp. and Nissan Motor Co. invested a combined $4 billion in India over the past three years, setting up new plants and boosting capacity at existing factories.
Current Prime Minister Manmohan Singh opened up the auto industry to overseas carmakers while serving as finance minister from 1991 to 1996. Before that, buyers had to wait years to get cars made by Maruti, Hindustan Motors Ltd. and Premier Automobiles Ltd., the three major local automakers. Consumers often reserved cars for a fee and then sold the delivery contract to other buyers for a profit.
A similar gray market has grown in India today for consumers seeking out Apple Inc. iPads. The computers, yet to be officially released in the country, are available for a premium in areas such as Mumbai’s Heera Panna market.
Parasrampuria, the Polo customer, said he’s tempted to buy an iPad as the wait for his new car continues.
“It is easier to get an Apple iPad in Mumbai in the gray market than it is to get a Polo,” he said.