11 Feb 2010;dailypioneer.com:Rakesh Bihari Jha:New Delhi: Consolidation is likely in the auto component sector in India. The companies have created excess capacities in the range of 20-25 per cent over the years but the return is marginal, so companies would not survive long on very low profits of 2-3 per cent. “Auto component companies have created excess capacities in the range of 20-25 per cent in anticipation of more business. But even after the end of slowdown, they are finding it difficult to capitalise on the opportunity as companies are unable to modify product portfolio to cater to change in demand “ said Senior Director at Deloitte Kumar Kandaswami. “Given the background, consolidation must happen in the sector. It is only a question of time. It may not happen in 2010, but it will surely happen in 2011-12.” Deloitte on Wednesday released a report- Auto Component Sector Report - Driving out of uncertain times. As per the report, financial crisis dealt a heavy blow to component suppliers also, who took a hit of $400 million in terms of lost profits. This lost profit was recorded during a 24-month period starting April 2007. “The price the auto component sector paid in terms of lost profits on account of the slowdown is in the order of $400 million,” said the report. But the problem still remains that despite demand picking up in the domestic market, they are again finding it difficult to capitalise on the opportunity. “These suppliers are facing a liquidity crunch as during the good times, they set up a lot of capacity, which later on created strategic rigidity. They were not able to modify product portfolio to cater to change in demand,” added Kandaswami.
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