SPECIAL FEATURE: INDUSTRY IN CHENNAI

Wheels of progress

V. SRIDHAR

Automobile majors set up base in Chennai with a view to tapping its traditional excellence in manufacturing and a highly competent workforce.

T.A. HAFEEZ

Inside Ford India Limited's plant at Maraimalai Nagar, near Chennai.

CHENNAI has for long been an important base for the automobile industry in the country. Although it is only recently that the city has become a manufacturing centre for the high profile passenger car segment, it has for many decades been an important base for the heavy automobiles and auto components industry. In fact, the city's excellence in manufacturing and the competence of its skilled labour have been the primary reasons for major automobile companies reposing faith in the city as a base for their activities.

Hyundai Motor Company, the $47-billion Korean auto giant, is planning to make its Indian manufacturing plant a global export hub by September 2004, involving an additional investment of about $ 200 to 250 million. Hyundai Motor India Limited (HMIL), a subsidiary of the Hyundai Motor Company, plans to invest $200 to 250 million to increase production at its Chennai facility by 60 per cent, to 20,000 units per month, in order to meet the growing demand for its models. The company also intends to establish another facility by 2006 to address the needs of the global markets. The company envisages that it will be able to export about 30,000 vehicles during the current year and double that figure in the following year. The Korean parent company has already invested about $700 million in its Indian operations. More than 15 Indo-Korean joint venture partners and original equipment vendors, employing over 6,000 people, support the automobile manufacturing facility. The plant is Hyundai's biggest facility outside South Korea.

The Korea-based Hyundai Motor Group, comprising Hyundai Motor Company, Kia Motors, Hyundai Mobis and several other affiliates, has a turnover of over $47 billion. The company has a presence in 185 countries. With an overall annual sales of about 3 million units, it is regarded as one of the fastest growing auto manufacturers in the world. The Hyundai Motor Group has recently allocated an annual fund of close to $2 billion for research and development (R&D), up from $1.2 billion, to enhance its thrust on new product development and achieve global quality benchmarks by 2005. This includes the $30 million Hyundai-Kia Design and Technical Centre in Irvive, California. Hyundai and Kia together have R&D centres in the United States, Europe and Japan, apart from the global R&D headquarters at Ulsan, Korea. Leading automobile manufacturers Daimler Chrysler and Mitsubishi have a combined stake of about 15 per cent in the parent company.

Sales at HMIL, the country's second biggest carmaker, increased by 27 per cent in October, compared to last year. Its flagship product in India is the compact car, Santro, but it also manufactures Accent, a sedan. It also produces the Sonata and Terracan, a sports utility vehicle. HMIL began production in October 1998 at its $700 million plant at Irrungattukottai on the outskirts of Chennai. It markets more than 18 variants of passenger cars, in four models. The company has produced 500,000 cars since commercial production commenced in October 1998.

The plant has been awarded the benchmark ISO 14001 certification for its sustainable environment management practices. A company source explains that the integrated nature of the car manufacturing process enables a "holistic approach", which synchronises the manufacturing and assembling parts of the production process. This is particularly important to meet the needs of a fluctuating market with flexibility. Consequently, production management processes at HMIL include practices such as the just-in-time inventory management, Kaizen and Total Quality Management. HMIL's facilities at Irrungattukottai include a press shop, a computer-controlled line that converts sheet metal to body panels of high dimensional accuracy and consistency. The body shop builds full-body shells from panels, which use automated robotic arms for welding operations to ensure superior and consistent build quality. The paint shop, regarded as the most modern of its kind in the country, uses a process management system that helps the company deliver vehicles in a wide range of colours even if the batch sizes are small. At HMIL's aluminium foundry, engine cylinder blocks for cars are manufactured. The company also has an engine and transmission shop, considered one of the biggest in India. This unit is equipped with modern tooling and testing facilities to manufacture a range of engines. The HMIL plant also has a plastic extrusion unit, where plastic parts for the cars are manufactured. HMIL also has a plastic paint shop. The company also has a track to test vehicles for performance. There are facilities for rattle and brake testing.

Hyundai's strategy is to use this plant as its base for feeding the world market for small cars. Sales, both in the domestic market as well as exports, have picked up during the last year, primarily because of the fiscal relief granted in the last Union Budget. Santro is sold in Europe under the brand names of Atos Prime and Amica. The company is targeting a growth rate of 20 per cent during the current fiscal. HMIL recorded combined sales of 111,051 units during the calendar year 2002. HMIL has a tie-up with Punjab National Bank (PNB) to provide easy finance to its car buyers through the latter's network of branches. Hyundai buyers are offered a preferential interest rate of 9.5 per cent for a three-year loan (10 per cent for three to seven years) on a daily reducing basis and a waiver of prepayment penalty. They need not pay processing fees and advance monthly instalment.

Earlier this year, HMIL asked its suppliers, numbering more than 70, to add a "product liability" clause in their agreements. Under this clause, the suppliers are liable for product recalls that Hyundai may have to make anywhere in the world owing to faulty components. This may have surprised some of the vendors because HMIL's products were mostly selling in the domestic market; after all, exports only accounted for a fraction of total sales of the company. But the insertion of this clause only showed Hyundai's strategic vision of making its plant a base for markets worldwide. It is this strategy that has resulted in the company pegging its quality to global standards. This also fits into Hyundai's overall objective of becoming one of the top five car manufacturing companies in the world by 2010. Hyundai realises that in the foreseeable future the small car segment is likely to remain the biggest in the Indian car market in terms of volume. Setting up a base for exports in India will enable the company to cover the risks and uncertainties associated with exports, which tend to fluctuate. A fairly large domestic market for small cars will enable the company to cover such risks.

HMIL is not the only one to have tapped Chennai's strengths in the manufacturing sector. Other global manufacturing giants have made similar announcements. Ford Motor Company has said that it is aiming to source $120 to 160 million worth of auto components from India, under its "India Sourcing Programme". Ford India Ltd. recently started exporting automotive components to the group's plant in China. Overall exports by Ford India in 2003 are expected to reach Rs.300 crores. The company also has a partnership with Hindustan Motors to manufacture engines for its vehicles.

Industry sources say that though Chennai may not be able to compete with China in terms of manufacturing costs, the quality of engineering available here, particularly in forgings and castings used in engines, offer unique advantages. Although there have been complaints, particularly about the lack of consistency in meeting quality standards, industry sources say that things have improved dramatically in the last few years. Working with the bigger multinational companies has pushed quality standards to higher levels.

Ashok Leyland, the Chennai-based company belonging to the Hinduja Group, is a major manufacture of heavy commercial vehicles. The company's sales of trucks and buses increased by more than 70 per cent in October, when compared with October 2002. Sales in April-September 2003 increased by 34 per cent, when compared to the same period last year. The company sold 24,346 units in the current year, compared with 18,150 units last year.

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