The current slump in the automobile sector has delivered a hard knock to component makers -- classified as small and tiny enterprises -- as about 600 manufacturing units in Jamshedpur have shut down operations, while more than 2,000 other units spread across the country are on the verge of closure.
Many of these units categorised under Tier-III suppliers purely survive on minuscule contracts handed out to them by finished component makers (Tier-II) or sometimes even automobile manufacturers (Tier-I). With almost all the vehicle makers, be it manufacturers of two-wheelers, cars or commercial vehicles (CV) having announced production cuts recently, the cyclical effect on companies at the bottom of the pyramid such as raw component makers has been the most severe.
Tata Motors' commercial vehicle making plant in Jamshedpur was shut down twice last month for eight days. The area surrounding the plant is littered by factories of component makers that supply tiny parts. About 600 parts manufacturing units have been closed due to diminishing demand from Tata Motors. This was a result of the CV major's move to reduce the production to 125-150 units a day at the plant from about 500 units previously.
A Tata Motors spokesperson said, "We do not give out day-to-day production figures at our plants. But yes, we have already stated that the company is trying to align production with demand and we have taken block closures. We source components from 157 vendors in and around Jamshedpur."
Anil Bharadwaj, secretary general, Federation of Indian Micro, Small and Medium Enterprises (FISME), said, "The order book has decreased dramatically this time. Even payments, which are due to component makers, are not being released. There is no money left to even tide over the basic day-to-day expenses. There are about 2,000 small components manufacturing units across India, which are on the verge of a shutdown."
Most of the Tier-II and Tier III-type component makers are based in cities such as Pune, Chennai, Gurgaon and Uttarakhand, which are developed 'auto clusters'.
Many of the Tier-III component makers have an annual turnover of Rs 30-50 lakh (Rs 3-5 million). Their level of workforce is also large due to a very limited use of machines, according to S N Thakur, president of Adityapur Small Industries Association, based in Jamshedpur, where about 80 per cent of all the local vendors supply to Tata Motors.
Dashratha Upadhyay, proprietor, DR Enterprise, a Tier-III auto component maker, which is based in Jamshedpur, said, "I have been forced to shutdown my plant as there has been no demand from Tata Motors. I had to also ask 15 of my employees to quit the company because I wasn't able to pay their salaries. Another 14-15 are being paid half their monthly salary."
Telcon, a joint venture company of Tata Motors and Hitachi that makes construction equipment, will also observe a 'block closure' for three days at its plant in Jamshedpur starting today.
Apart from Tata Motors, the country's other frontline automotive companies such as Maruti Suzuki, Hyundai Motor India, Ashok Leyland, Force Motors, Mahindra and Mahindra, Bajaj Auto, TVS Motors and Eicher Motors have cut down production drastically owing to a severe fall in demand.
Car manufacturers, which enjoyed double-digit growth rates earlier, are now bracing up for the worst this year with growth projected to be in single digit. Reluctance of banks and other financial institutions to reduce interest rates and also to soften lending norms have dampened the buying spirit of consumers, officials of various automotive companies said.