Economic meltdown, inflation (and now deflation), cut in consumer spending, interest rates, cancellation of orders, unpredictability brought on by the general elections - all this and more has certainly dimmed the lights on the otherwise shining auto sector of Pune. In fact, the gloom has spread to such an extent that even the recently announced stimulus packages by the government and the Reserve Bank of India have failed to bring about any cheer. 

"Most of these stimulus measures are too general, and may or may not benefit all the industries in the auto sector. For example, a particular company might have taken a huge loan for expanding its capacity and is now not able to pay back due to the slowdown in sales. In such a case, the stimulus package may not be of any benefit. Therefore, it has to be taken on a case-to-case basis. However, Pune's auto sector will certainly emerge out of this dark phase because of the presence of many international manufacturers," opines Rohan Pusalkar, Executive Director, Indo Schottle Auto Parts, India's largest manufacturer of engine valve collets, rocker arm screws, turbocharger components and assemblies and fuel system parts. 

Varying opinions 

Reactions to the packages certainly seem to vary. For instance, many in the city's auto sector have a feeling that the government's move to cut excise duty by two per cent may not usher in any spectacular results soon but is certainly a positive step towards revival of demand. As Vijay Pusalkar, Chief Managing Director, Indo Schottle Auto Parts, points out, "Any reduction in tax is good and is bound to increase production activity. The duty cut is a signal to manufacturers to stop worrying about the economic downturn." It is felt that the truck and heavy vehicle manufacturers are likely to benefit more than car makers. 

For auto component and small and medium enterprises (SMEs), enhanced business could come from an anticipated boost in production by truck manufacturers, who would like to make the most of the cut by pushing as many products into the market as possible before the end of the financial year. The city is home to some of the largest manufacturers of light, medium, and heavy-duty commercial vehicles, two-wheelers and stationary engines. This includes General Motors and Mercedes Benz. There is also Volkswagen's plant at Chakan that has just started operations. 

In response to the cut in excise duty, Dinesh Munot, Managing Director, ZF Steering Gears Ltd, opines that the reduction would result in an improved cash flow. This is certainly good news for the auto sector in Pune which, as per the figures released by the Auto Component Manufacturers Association (ACMA) in March 2008, peg the industry's size at 53 large companies with a collective turnover of US$ 1,400 million and exports worth US$ 235 million. Additionally, there are about 7,000 auto ancillary units in and around Pune. 

According to Deepak Chhabria, Chairman, Confederation of Indian Industries (CII) Pune Region, "The duty reduction will enable manufacturers to pass on the benefits to the end users and so should stimulate fresh demand". On the other hand, some feel that there has been no specific attempt by the Finance Minister to help the auto sector come out of the problems. Shyam Kambeyanda, Managing Director-India, Eaton Corporation, feels that investments may be pushed out by four to six months in anticipation of the new policy from the next government. 

Commenting on the current scenario, Kohinoor Indani, Director, ONM Forge, has this to say: "I personally don't think that the packages will have a lasting effect on the city's auto sector, especially the SME segment. There was a little buzz about the good results for March but that I think has been an attempt to post good results in the second quarter. The reality is that up to 25 per cent of the SMEs that were directly dependent on the auto majors have closed down due to lack of orders. Forging companies are now shifting their attention to other sectors such as power and energy. Those companies that had export orders are now facing a total lull because of the complete slowdown in the US and UK markets. The UAE may offer some hope though." 

Recent developments 

While the negative vibes continue to engulf the city's auto sector, the one positive move in recent times has been that of Mercedes-Benz India formally inaugurating its new manufacturing plant at Chakan. The new facility was completed within 13 months from the start of construction - among the fastest green-field projects to be created. With an area of 100 acres of land and independent assembly facilities for passenger cars and commercial vehicles, the infrastructure was created to address future expansion needs, underscoring the long-term growth plans of the company in India. 

In fact, the year 2009 began on a good note despite the slippages on the economy track. The city drew investments from two multinational corporations. On January 20, the Italian Brembo Group, manufacturer of ceramic brake systems, launched its disc-braking systems plant at Chakan near Pune with an investment of Rs 100 crore. A few days later, German auto component manufacturer Norma launched its new state-of-the-art plant at Talegaon, and announced an initial investment of Rs 30 crore. Norma Group Products India, an 80:20 joint venture between Norma and Taurus Flexibles, will manufacture plastic tubing systems and clamps to cater to the needs of the auto industry, especially the passenger cars and commercial vehicles. 

"Besides focusing on the Indian auto original equipment manufacturers, we will also set up an engineering centre that will support the group's global engineering projects," informs Bernd Kleinhens, Managing Director, Commercial and Passenger Vehicles Business Unit, Norma Group. "The economic slowdown will not affect our sales and as per our plan, we will enter the distribution and industry market by 2010. The response from the auto OEMs has been very encouraging and we already have 60 projects. With our own manufacturing base in India, we will be able serve Indian customers better and supply them with complete tubing systems and clamps at competitive prices," he adds. 

Yet another entrant in recent times has been the ElringKlinger Group, a leading German development partner to the automobile industry and original equipment supplier of cylinder-head and specialty gaskets. The company has set up its first manufacturing facility in India located at Ranjangaon. With its presence in 21 locations across the globe and a turnover of Euro 607.8 million, the group has strengthened its position as a direct supplier to customers in India. The plant, set up at an investment of Euro 5 million, will have a capacity to produce several millions of gaskets for powertrain applications such as engines and transmissions. 

Commenting on the new manufacturing facility, Juergen Weingaertner, Managing Director (India), ElringKlinger Group, states, "We have correctly assessed the Indian auto sector over the last few years and are now ready with a plant of our own to make our presence felt. We look to bringing our global expertise and best practices along with world class products to the Indian consumer. With this plant in India, we will further strengthen our offerings in the global market." The plant will cater to the needs of Maruti Suzuki, Ford, Mahindra & Mahindra, Ashok Leyland, Fiat-Tata and Piaggio, among others. 

Meanwhile, Cosma International is planning to get its plant operational in Pune by 2010. An operating unit of Magna International Inc, and a leading global supplier of automotive body and chassis systems, the company will now have two operations in the country - the other being a fully equipped product and process engineering services group in Bangalore. The Pune plant will supply global and regional customers with stamped and welded assemblies. Additional products and processes, such as hydroforming and Class A sheet metal are expected to be added in the near future. 

Why Pune? 

In fact, to look at the brighter side, the Maharashtra government's aggressive sales pitch for Pune and the surrounding Talegaon-Chakan-Ranjangaon belt as a great destination for auto companies is beginning to reap rich dividends. Some of the auto giants who have stepped forward to make Pune truly an auto hub include global majors Volkswagen, General Motors, DaimlerChrysler, Fiat as also domestic leaders such as Tata Motors, Mahindra and Mahindra and Bajaj Auto. 

Elaborating on General Motors' choice of Pune as the location of its second plant in India, P Balendran, Director and Vice-President, Corporate Affairs, says, "Pune has a large supplier base. When we start exporting, the Nhava Sheva port is just two hours' drive away. Also, the western region is our second largest market after the north, and logistically, this plant can cater to both southern and northern markets." General Motors, which already has a plant at Halol, is investing Rs 1,400 crore at Talegaon, and will look at global sourcing from India. 

With a proposed investment of Rs 2,400 crore at Chakan, the German auto company Volkswagen has even bigger plans. In its second innings in the country, Italian car maker Fiat has tied up with Tata Motors to set up a joint facility in Ranjangaon for the manufacture of cars and powertrains. The total investment in the joint venture is Rs 4,000 crore. Palio Stile, Grande Punto and the Linea are some of the models that will be manufactured here. The reason given by these companies for choosing Pune above other cities is that there is available here a huge supplier base. Bharat Forge, the Rs 6,000 crore plus company, makes forgings for the auto industry amongst other applications. Bosch, Kinetic Engineering and Autoline are among the other big players. 

Additional boosters 

That Pune is gaining strength from the arrival of MNCs is also evident from associated developments. Consider, for example, the fact that Tata Motors and the government of Maharashtra have signed a Memorandum of Understanding (MoU) to facilitate the proposed expansion of manufacturing plants and setting up of vehicle testing facilities here. Tata Motors will invest about Rs 6,000 crore over a four to five year period in its existing plants and for the setting up vehicle testing facilities. 

Further, IBM has set up a new Global Delivery Center in Pune to provide auto majors, among other industries, business consulting and application services. According to Rajesh Nambiar, Vice President and General Manager, Global Delivery, IBM India, "The vast presence of original equipment manufacturers (OEMs) and automotive industry expertise in Pune will help the new center serve as a strategic location for IBM's global and local automotive clients. It will offer a wide range of services that cover key areas such as product lifecycle management, manufacturing productivity, business consulting, human capital management, financial services, technology services, and solutions for small and mid-size automotive manufacturers." 

What has also helped is the presence of the Automotive Research Association of India (ARAI) in Pune which is India's premier automotive R&D, testing and certification organisation. It has now tied up with TUV Rheinland, a 130-year-old German multinational and one of the world's largest testing, inspection and certification agencies, to offer testing and homologation solutions to the Indian and international automotive industry. With this association, the Indian manufacturers will have an edge in exports of vehicles and vehicle parts as all the aspects of testing and certification as per international standards like EEC/ECE will be handled locally by qualified experts. 

Cluster approach 

What has helped Pune grow as an auto hub is the cluster of SMEs, most of who cater specifically to the needs of the manufacturers. The yearly turnover of this cluster is approximately Rs 10,000 crore (excluding automobile majors like Kinetic Engineering, Bajaj Tempo, Bajaj Auto and Tata Motors). The major products from the Pune cluster are clutch components, gear components, brake components, shafts, axles, valves, engine components, electrical components, etc. 

The Rs 124-crore auto cluster project was set up under the Industrial Infrastructure Upgradation Scheme (IIUS) of the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry along with the Pimpri-Chinchwad Municipal Corporation. The first phase of the project began with an investment of Rs 64 crore and is up and running. Currently, there are CAD/CAM, rapid prototyping, calibration, environment testing, rubber and polymer component testing facilities. 

The auto cluster has generated revenues of Rs 1.6 crore in FY08 and the target for FY09 has been set at Rs 4 crore. Dilip Band, Municipal Commissioner, Pimpri Chinchwad Municipal Corporation, says that the auto cluster was set up to be self-sufficient and generate its own funds. Tata Motors tested its Nano and XI (the new Indica) at the Auto Cluster Development and Research Institute Ltd (ACDRIL). The cluster is now planning to provide another facility - a design-and-style centre. Vikram Salunkhe, member of ACDRIL informs that a proposal has been sent to the government regarding the establishment of a style and design studio with an additional investment of Rs 5 crore. 

Looking for hope 

Given the positives and negatives of the auto industry in Pune, the one factor that is now keeping everyone engaged is the elections. "The picture will become clearer after the elections and the movements that will happen in April and May. Most importantly, the onus is on the banks to release loans so that the SMEs can get back on their feet and be able to drive the auto economy forward," opines Indani. Meanwhile, Rohan Pusalkar puts the whole thing in a nutshell when he says that the one thing sorely needed at this hour is a restoration of the confidence levels. "What is missing is financial liquidity. The auto industry is directly dependent on the retail finance market and only when people will once again start taking loans to buy vehicles will the sector begin to move forward," he says.