Depreciation of the Indian rupee has forced automakers in India to scour for local alternatives to import of auto component supply with the objective of reducing costs. Major auto players in the industry are now considering localization as the only method to overcome the higher costs incurred due to weakening of the Indian rupee.
While the shift from importing auto parts from foreign markets to localization of supply would reduce costs for the automobile manufacturers, industry experts are of the view that it would also strengthen the domestic auto parts industry and may even enable it to become a sourcing hub for global players.
According to Mr. Ajay Seth Chief Financial Officer Maruti Suzuki, the company may be able to reduce its parts supply costs by 25-40 percent through localization of parts. The company has already incurred a loss of approximately Rs 225 crore in the October-December 2011 period as a result of the depreciation of the Indian rupee.
Mr. Pawan Goenka Head Mahindra & Mahindra stated that the company is working on increasing localization but it would still need to import parts that are unavailable in the domestic industry.
Meanwhile, foreign automobile manufacturers such as Volkswagen and Ford are also considering an increase in the procurement of parts from India.