* Automakers looking to slash imported content
* Maruti sees big savings by switching to local suppliers
* Hero MotoCorp costs up $70 mln in Q4 on rupee slide
* Local parts industry set for demand boost
* Rupee hit all-time low vs dollar last week
By Henry Foy and Anurag Kotoky
MUMBAI/NEW DELHI, May 29 India's car and
motorbike makers, smarting from a tumble in the rupee that has
increased import costs, now have little choice but to go local
when buying parts - a shift that will further help the domestic
industry become a sourcing hub for global automakers.
Much of the industry's import bill is due to historical
support provided by foreign carmakers. Suzuki Motor Corp
, Honda Motor Co and South Korea's Hyundai
Motor Co invested heavily in the country, and local
manufacturers looked to the East for parts.
But things are different now.
Hit by global risk aversion stemming from the European debt
crisis and India's bulging current account and fiscal deficits,
the rupee hit a record low last week, and has fallen 26
percent against the yen and 24 percent against the dollar since
Ajay Seth, chief financial officer of top carmaker Maruti
Suzuki, said his company could cut annual parts costs
by 25 to 40 percent if it switched to local suppliers.
"Localisation is absolutely the only way around a further
weakening of the rupee. There is no other answer," he said.
Maruti, which with its suppliers imports about $2 billion
worth of parts every year, lost $40 million in the
October-December period as the rupee fell against the yen.
"Hedging is only a short-term measure. The only way to truly
de-risk yourself is through localisation."
The impact of the rupee can perhaps be best seen in the very
different profit margins of motorcycle makers Bajaj Auto
and Hero MotoCorp, which until recently was
aligned with Honda.
Bajaj, the nation's No. 2 motorbike maker, uses 97 percent
local parts and its imports costs are equivalent to just 15
percent of its export revenue, which grew 40 percent in the year
to March 2012 to $1.4 billion.
That local edge helped Bajaj to an operating margin of 19.4
percent in the year that ended in March.
By comparison, Hero which imports around 15 percent of its
parts and saw its costs go up by $70 million in the fourth
quarter of the last financial year due to the rupee, posted an
operating profit margin of 7.3 percent.
Led by auto hubs such as Chennai, known as India's Detroit,
and which is located in the southern Indian state of Tamil Nadu,
the nation's auto component industry has grown to around $45
billion, double its 2008 value.
It is expected to generate annual revenue of $113 billion by
2021, according to the Automotive Component Manufacturers
Association of India.
"Local sourcing has definitely been a conscious business
decision," Bajaj finance head Kevin D'sa said. "India has a very
well-established vendor network with state-of-the art production
facilities. The need for imports doesn't really exist."
Mahindra & Mahindra, India's biggest SUV maker, is
working to bring some parts made overseas back onshore as the
rupee has slid more than the company expected, automotive head
Pawan Goenka told Reuters.
But the company can only localise so much and will still
need to import parts such as airbags and parking sensors that
are unavailable at home, Goenka added.
Foreign automakers too are looking to increase their parts
procurement from India - both for cars made in India and for
those made overseas.
Volkswagen plans to purchase 700 million euros
($890 million) worth of parts from Indian suppliers in 2012 for
its global factories, double the amount it bought in 2011.
Other international carmakers in India, such as Ford,
are targeting 95 percent localisation.
"Everybody has a focus on localisation and we are in a very
strong position to localise more and more," said Pankaj Mittal,
chief operating officer of India's Motherson Sumi, the
world's biggest manufacturer of rear-view mirrors.
Maruti's Seth says the company can change suppliers within
four months of a local vendor starting to produce a component,
but due to long-term contractual obligations, the company has
given itself until the end of 2014 to reduce its imports by 50
($1 = 0.7869 euros)
(Editing by Edwina Gibbs)