Auto firms in Gujarat face supply crunch amid increasing demand


Auto makers who rushed to Gujarat to set up manufacturing plants are now facing the problem of a shortfall in the number of auto parts vendors as car makers seek to boost capacity to meet rising demand.

Image for representational purpose only

The problem is not having an “adequate” number of vendors and capacity constraints at the facilities of existing vendors, three people aware of the matter said.

For its part, the (Acma) has decided to hold a roadshow in Gujarat on 18 and 19 March. Vinnie Mehta, director general of Acma, said that the idea is to help original equipment makers (OEMs) find new suppliers in Gujarat and provide a forum for the industry to get in touch with government officials.

“Since the state is tipped to become the next hub (for auto manufacturing), a lot of issues need to be resolved by the state government,” explained Mehta.

The race to set up car factories in Gujarat started when then chief minister Narendra Modi managed to convince Ratan Tata to set up a factory for his ambitious Nano project in Sanand. Tata was struggling to start production of Nano, which was originally planned at Singur, West Bengal.

The production of Nano cars in Gujarat put the state on the world map of auto manufacturing, attracting billions of dollars in investments from companies such as Suzuki Motor Corp., Honda Motorcycle and Scooters India Pvt. Ltd and Ford India Pvt. Ltd for setting up manufacturing units.

After having exhausted existing capacities, some of these manufacturers are now planning to expand.

For instance, Suzui Motor has already set up an assembly line of 250,000 units in the state, and a second line will be in place by the end of next year. Suzuki has a contract manufacturing agreement with its subsidiary Maruti Suzuki India Ltd under which the former sells products at cost price to the latter.

According to one supplier who supplies to both Suzuki and Tata Motors, only 10-15% of the total tier one suppliers in the country are in Gujarat. “Also a negligible number of tier two suppliers are present in the state,” the supplier said, requesting anonymity.

Most of the new production for Maruti Suzuki will come from Suzuki’s plant in Gujarat as two of its other manufacturing plants in Manesar and Gurugram in Haryana are running at full capacity.

“Both Maruti Suzuki and Suzuki Motor are in constant dialogue with the suppliers and encouraging them to expand capacity in line with the expansion plans. Several leading suppliers have already set up facilities in the area. This is likely to gather momentum, and further promote growth and job creation in the region,” a Maruti spokesperson said in response to an email query from Mint.

According to the vendor cited above, suppliers find it difficult to hire skilled workers in the state. “Also workers from other states who eat non-vegetarian food find it difficult to get a place to stay. That’s why there are negligible amount of suppliers. Also our tier two suppliers are not convinced about moving there,” the vendor added.

But carmakers are hopeful. “It is not as if the suppliers do not want to come. The business opportunity there was very limited and now some of them have started moving there as the production capacity of manufacturers has started to increase,” said a senior executive of a car maker present in Gujarat, requesting anonymity.

According to a consultant, Suzuki’s move to expand in the state will ramp up supplier presence. “With Maruti Suzuki moving to Gujarat, the component suppliers will have to move there, which will be one of the automobile manufacturing hubs in the coming years. Also most of the vehicle manufacturers follow the just-in-time model of production which makes it imperative for suppliers to set up capacities around that of an OEM,” said Puneet Gupta, associate director at forecasting firm IHS Markit.

According to a spokesperson for Honda Motorcycles and Scooters India, on Acma’s request and overall interest of the auto industry in the region, Honda management will attend the roadshow. A spokesperson for Ford India also confirmed that managing director Anurag Mehrotra will attend the event.

The manufacturers mentioned above did not comment on the shortfall in the number of auto parts makers based in Gujarat. Tata Motors declined to comment on the issue.


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