Auto cos change gear to cut costs

Tamil Nadu’s newfound popularity among twowheeler investors may be the result of a new production strategy currently ruling the auto industry. Automobile companies are taking a leaf out of developed markets such as the US to look for a wider geographical spread while planning their plant locations. With transportation costs running as high as Rs 1,400 per motorcycle in some cases, producing from multiple locations not only saves cost but also ensures just-in-time and bottleneck-free movement of goods. “The southern markets command 30% share in twowheelers, the same as the north, while the west commands 35%,” said TVS MD Venu Srinivasan. “Having plants in multiple locations helps cut transportation costs and reduces chances of supply bottlenecks. It’s the same in America – once a state reaches critical mass, companies set up a new plant elsewhere to ensure wider spread.” In Chennai’s case, he said, a port facility for exports, skilled manpower and good industrial environment have all helped attract fresh investments, he added. Apart from the Rs 1,500-crore Yamaha announcement on Monday, Chennai has also attracted investments from the likes of Royal Enfield. Meanwhile two-wheeler market leader Hero Moto Corp is reportedly looking at a southern location – either Tamil Nadu or Karnataka – for its fourth plant though there’s no official confirmation yet. Company CFO Ravi Sud said at an analyst meet last week that the final announcement on the new plant could come in a couple of weeks. The attraction of the southern markets has also tied in with labour problems in the Gurgaon-Daruhera belt, the nerve centre of the two-wheeler industry. Labour has become prohibitively expensive in Gurgaon-Daruhera and it is also getting restive, said a top auto executive. Unsurprisingly, Hero Moto’s Haridwar plant now supplies the lion’s share of its soon-tohit 7 million units per annum total production, significantly higher than both Gurgaon and Daruhera. DERISK STRATEGY Auto companies set up more hubs to tap regional markets Spreading out factories means lowering of transport costs It also means fewer supply-chain bottlenecks Labour troubles get derisked Closer to a new market will better sales and marketshare