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Jan 25, 2009

Coimbatore Auto Ancillary Sector Seeks Bailout Package

The auto ancillary sector in Coimbatore is in deep trouble. It is forced to cut back production to avoid inventory pile up. The situation looks bleak for the coming financial year. After Chennai, the texcity is the next big auto component hub in the State. It meets nearly 30% of auto parts requirements in the country. However, now the original equipment manufacturers ( OEMs) are the worst hit by the decline in automobile sales. Decline in vehicle sales has left the component units with stocks upto 30 days against the normal seven days.

Since the export orders have also dropped by 25% the companies have piled up more than three months of stocks meant for exports. Leading players like Pricol, Roots Industries and LG Balakrishnan & Bros have trimmed production. But, so far they have managed without any massive layoffs. LGB which has eight units in the city have closed one of its forging units. However, in other units, the employees are paid according to the number of days worked. While Pricol has decided to close down plants by combining with holidays, other companies have gradually slowed down output since October 2008. "We have consciously been lowering our production in the last four months by taking precautionary measures, like working for only four days and cancelling the third shift," said an official from Roots Industries.


The company's specialised product, horns holds 60% market share in India. Though horns come under the after-market accessory segment, still the fall in vehicle sales have contributed to drop in turnover in the first three quarters of FY08 compared to same period last year, he added. "We see a 25% to 30% decline in accessories sales this year," said a marketing official of Roots . He added the products catering to workshop segment is doing relatively better. Elgi Equipments, GM, Mathew Kurian also added, the business in the auto service segment is doing good despite the company not seeing the expected growth this year. The major supplier of chains and sprocket in India, the LGB has seen a drop of 25% to 30% in orders. The company known to hold a market share of 70% in chains and sprocket category in the country is now banking on replacement market segment to break even.


The worst hit are the manufacturers, who cater to the OEM segment. "The sales volume has come down by 50% to 60% in OEM category," said an official of Roots. Sources said, the companies are planning to deplete its piled up inventory in the first three months of 2009 and then wait for signals from the vehicle market. Industry sources are looking for a bail out from the Government. "Unless the government announces some duty cuts for automobiles and lowers the interest rates, the industry would see a downslide next fiscal as well" they added.

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