Despite the fact that auto ancillary companies are linked to the automobile industry, their competitiveness remains low. These companies face challenges in constantly evolving technology, low negotiating power, and regulations that require substantial investment. The following are some of the challenges faced by auto ancillary companies. These challenges should be viewed in a broader context. Here are three of the most prominent. The industry is undergoing an interesting transformation.
The automobile industry is highly dependent on the general economic environment. As automobile purchases are discretionary, they impact business performance in auto ancillary companies as well. Moreover, these companies have poor negotiating power with OEMs and suppliers, causing cyclicity. This is one of the factors that contribute to the low profitability of auto ancillary companies. The challenges that auto ancillary companies face in this environment can be understood if we examine their financials.
While auto ancillary companies have a long-term goal of becoming indispensable partners to OEMs, they face an uncertain future without technological upgrades. To protect their margins, they have been diversifying their products and partnering with foreign players to win additional business. This means that they face the risk of becoming obsolete without constant technological upgrades. So, how can auto ancillary companies remain profitable? The answer lies in finding ways to improve their technological capabilities.
Auto ancillary companies have struggled in recent years due to low profitability. Low profitability and a poor return on assets have made many of them turn to the aftermarket. In addition to the cyclical nature of auto ancillary companies, they are highly competitive. To grow their revenues, auto ancillary companies have invested heavily in distribution channels, sales & marketing teams, and other infrastructure. However, they are not yet able to reach the size of their rivals in the auto industry.
In addition to competition among these companies, the automotive industry is also facing several challenges. For one, automobile demand could remain subdued. Interest rates on auto loans could be deterring for auto buyers. In such a scenario, the Reserve Bank of India would have to reduce rates in order to soften the market and boost sales. Moreover, the onset of the El Nino phenomenon may mean poor monsoon and low agricultural output, dampening the demand for two-wheelers and tractors in rural areas.
The electric vehicle industry in India is growing, with battery prices falling and government policies supportive. By 2030, electric vehicle penetration is expected to be at its highest level, with the emergence of luxury passenger cars, light commercial vehicles, and electric vehicles. In addition, connectivity is in its early stages in India. However, mass adoption of smartphones may help with the proliferation of connectivity features. This is a big opportunity for auto ancillary companies in India.
One of the promising auto ancillary companies is Minda Industries Ltd. Founded in 1992, this company manufactures switches, starters, plunger and rocker switches, lightings, and batteries for two, three, and four-wheel vehicles. The company operates eight state-of-the-art facilities across India and the ASEAN region. The company also plans to establish a presence in the global automotive market through strategic alliances.