GM bankruptcy opens new opportunity for Indian vendors

The decision of General Motors (GM) to file for bankruptcy could create a new supply chain for Indian and Chinese auto component makers, say industry analysts.



"Corporate bankruptcy in the US is merely restructuring of operations under the government eye. It is not insolvency of a company," said an official of an auto component company.

Agreed V.G. Jaganathan, president (finance) at auto component maker Sundram Fasteners that supplies to the Detroit-based auto behemoth: "GM is not going to die; it is just restructuring its operations."

Analysts said restructuring could mean spiking bigger models for fuel-efficient small cars and hybrid models, which would wedge open GM's supply chain for suppliers in India and China.

"It is well established that Indian component vendors are cost-efficient. As a part of its restructuring, General Motors will start looking at cost-effective suppliers. Indian and Chinese companies are better placed at that," Surjit Arora, Mumbai-based auto analyst with brokerage house Prabhudas Lilladher, told IANS.

"If auto makers move towards hybrid vehicles, it will create business for power train manufacturers though the other components will remain the same," added an auto sector analyst.

GM's rationalisation of plants and product portfolio may make several American auto ancillary units sick, making them potential targets for takeovers.

However, most Indian auto analysts advise against acquiring any of them.

"It is better for us to wait before going in for acquisitions. Cheap assets may turn out to be expensive," said a senior official of an Indian auto component company.

Agreed Bangalore-based strategy and business excellence consultant Achal Raghavan.

"Any acquisition is a long-term strategic move. You may get better valuation. But as past rules do not apply now, companies should take a holistic look at market strategy, customers of today and the target customers over the next three-five years," Raghavan told IANS over phone.

Raghavan, who was earlier with a leading auto component company, said that to survive in the new environment, component vendors cannot just remain suppliers but have to help customers remain competitive.

"Indian auto component companies are not really out of the woods given the industry slump. As such, they may not commit any additional capital on acquiring plants overseas," said Prabhudas Lilladher's Arora.

Indian auto component vendors that export to GM include Bharat Forge, Amtek Auto, Sundram Fasteners and Maini Precision. They say they are not overly worried about developments in Detroit.

"Our exposure to GM is around Rs.11 crore, which is less than one percent of our turnover," said Sundram Fasteners' Jaganathan.

Arora too said Indian auto vendors may not be hit in any major way as their client portfolio is well spread. For instance, he pointed out, GM accounts for just 2-3 percent of the total sales of Pune-based Bharat Forge.