THIS FISCAL IS GOING TO BE THE WORST YEAR IN THE HISTORY OF AUTO INDUSTRY: L GANESH, CHAIRMAN, RANE GROUP

 Until October 2008, it was a boom period for one and all in the auto industry, including leading auto components manufactuer Rane Group of Chennai. But things changed dramatically in the last four to five months leaving the industry bleeding, thanks to the global financial meltdown. Having sensed the inevitable early, Rane Group has undergone a lot of introspection at all levels to become a lean and mean group to not only withstand the onslaught of the slowdown in the short-term but also to seize the opportunity as and when it arises, down a year or two, with renewed vigour and strategic initiatives. In an exclusive interview with R Ravichandran of the FE, L Ganesh, chairman of Rs 1,400-crore Rane Group, dwells in length on the challenges and prospects of company. Excerpts:

Your view of the global meltdown impact on auto components industry.

The $2.5 billion auto components industry had been experiencing a robust growth of over 25% to 30% over the last four years till June/July 2008. Though the first sign of slowdown felt in July itself on the export front, but the industry continued to do well till September 2008 until it collapsed dramatically at the beginning of October and the things never looked up in favour of the indsutry till date. The third quarter found to be a real disastrous for the industry, leaving it bleeding on both topline and bottomline.

If the US slowdown was first to hit the industry, then came the European markets to add woes further. This fiscal going to be a worst year in the history of auto industry in general and auto components industry in particular.

What are the pressures being faced by Rane Group companies?

If the industry has been experiencing a worst period, it cannot be a different one for Rane Group. We have been experiencing a challenging period. The Q3 was the worst for Rane Group in total and all our group companies have reported negative growth. We lost exports heavily in Q3, which is one of the major growth area for Rane group as well contributes substantial to overall group turnover. With the demand from domestic market equally shrinked to a new low due to lack of liquidity, the group sees Q4 will be that of Q3 and the fiscal 2009 will be a bad year, may be a 15% to 20% negative growth in real terms.

In the last few days one would have seen a number of tie-ups between PSBs and auto companies. Do you see these tie-ups will really help in early revival of demand and growth?

It is a welcome move by the PSBs and would help driving the demand, but to a certain extent. Unlike other segments of the auto sector, the demand for commercial vehicles is purely driven by the GDP growth. Our economy is linked to the global economy, particularly that of the US. Unless it recovers, the uncertainties remain to be seen. Though the volume of the CV segment is small in nature as compared to that of passenger vehicles, cars and two-wheelers but it hold huge value in terms of business for the component manufacturers.

Unless the demand for CVs go up, the tie ups and lower interest rates will only have a little positive impact on the industry. One has to wait and see how the things evolve over a period of time.

What are the key initiatives taken (or being taken) by Rane Group to offset the slowdown both in the short-term as well as long-term?

Probably we were one of a few to sense the impending impact of global slowdown on the domestic auto industry and to take major initiatives to counter the threat on both counts. Our first priority was to address the short term issues and then with a slew of measures to seize the opportunities on a long-term basis. On the short-term basis, we have effected measures including cutting costs at all operational levels, bringing down inventories, redcuing capital expenditures (nearly 50%), laying off contract labourers (1,500), trainees, cutting down the salaries/wages of employees (to the extent of 10%) while maintaining the morale of the people on a positive note.

On the long-term, we have taken initiatives on how to become a lean and mean organisation to not only take on challenges similar that of the current one but also to seize the growth opportunities as and when it revive again. We have looked at our fundamental business model, cost structures, customers portfolio, exports potential, white collar productivity, optimum utilisation of staff strength, redployment at various levels-shifting, transfering, no replacements for retirements without spoiling the organisation culture and set up. In turn we have to say that we have completely relooked at our organisational structure to become a more lean and mean organisation.

The outlook for the auto components industry in general and Rane Group in particular

Though there have been some initiatives from the government and PSBs, but the 2009-10 fiscal is going to be a flat year for the industry, including Rane Group. When the market revives, may be after a year, things will not be rosy as that of last few years and the industry will have to tighten its belt strongly. Those small units which purely depend on one particualr OEM or with single product manufacturing capability will have to be folded up and the industry will consolidate to a certain extent.

As a TQM accredited group, Rane has been well positioned to grow strongly over the years. There is no change in our vision. We have taken all necessary measures to be a major components player in India not only for domestic market but on the export front too.