The Indian juggernaut

As carmakers and suppliers around the world re-assess their position in the global market and adjust to economic uncertainty, India’s key automotive players have plans to get the best out of their growing and increasingly influential market

The issues concerning carmakers in India are very different from those affecting Western Europe and America. They include skilled labour retention, finding reliable and high-quality suppliers, the sheer size of the country and the logistics challenges this brings.

In the second part of our focus on India, AMS talked to Indian-owned carmakers, joint venture partners and their transplants to gauge their impressions of the benefits, opportunities and challenges of building cars for a market where demand is exploding. As the new middle-class of India comes of age and moves into an economic maturity that will see hundreds of thousands of new customers able to make the traditional car buying path from sub-compact, to compact and upper levels of buying power, so the world’s manufacturers are faced with an enviable problem – how to make great cars for a hungry new market.

Mercedes-Benz – the road to full manufacturing
In April 2008, Mercedes-Benz produced its 20,000th Indianbuilt car, when the 10,000th E-Class rolled off the line at its Pimpri plant, near Pune in Maharashtra state. Growing out of a joint venture with Tata started in 1995, M-B opened its own, 100 per cent-owned plant in 1999 with E-Class production, adding S-Class in 2000, and C-Class in 2001. While the plant is a CKD facility, it does have a body welding line and paintshop facility. Assembly is not heavily automated, but quality is high and the plant was voted best manufacturing centre outside Germany for five consecutive years.

The Pimpri plant is limited to a capacity of 4,000upa and the next step is a new state-of-the-art facility on a 100-acre (40.5-hectare) site in Chakan, also in Pune, which will start production in the first quarter of 2009 and aims to grow from 5,000 to 20,000upa over the following eight years. AMS talked with Dr Wilfried Aulbur, Managing Director of Mercedes-Benz India:

AMS: How do you expect M-B manufacturing in India to progress in the next few years?

WA: Now we have state-of-the-art facilities in place and being built, our task as an OEM is to bring continuous improvement over the coming years. Then we will move to part-by-part delivery and eventually to full manufacturing. The latter is still about ten years away at the earliest because of the volumes. For example, M-B only had two per cent of the luxury segment in China in 2007, and in India the figures are much smaller but growing well. In India, demand is much greater for smaller cars, a big contrast with China, which is our second largest market for S-Class models.

AMS: How much do you expect automation to grow at M-B in India?

WA: Very little, if at all. A robot will cost us a lot of money, and while we are slowly hitting volumes where we might introduce some robots, this would be more for quality reasons than speed.

It is important to bear in mind that the starting salary at a supplier is about €60 (US$81) a month for some – and that includes benefits like retirement and health insurance, for example. At an OEM they would start off at be about €80 (US$108) a month. At M-B, fully trained skilled workers are paid about €400 (US$538) per month. This is comparable to some Eastern European countries, like Romania. With these figures you have to consider the trade-off between labour and automation. Quality would be the driver for automation in assembly, and speeding up production.

There are also a lot of restrictions in labour legislation, and union problems. We don’t have these problems at M-B, but some other transplants in India do. This gives us a lot of flexibility and allows us to take on temporary labour to meet demand. AMS:Will M-B in India create supplier parks like those in Europe and America as you move towards full manufacturing?

WA: Our full CV manufacturing plant in Chennai will be a completely-built-units (CBU) plant, so we will have supplier parks. These will be low-priced vehicles, not M-B, but Indian CVs.

AMS: Are you buying Indian-made tools and equipment? WA:We use many locally-made jigs and fixtures and I am very happy with the quality of these.

Our next big investment here in Pune will be in the paintshop area. We will be building a painting facility that is scaleable and adaptable for cars, trucks and buses. AMS: How good is your employee retention?

WA: In the blue-collar workforce, turnover is very low but we do have around 12 per cent turnover in the white-collar teams. This is high for the industry if you compare with the rest of the world, but low relative to many carmakers here in India – 20 per cent is typical.

BMW looks to local markets
BMW’s Chennai plant builds 3- and 5-Series saloons in batches of 24, at about 12 units per day. Ninety-eight per cent of parts, including painted bodies and semi-assembled powertrains are shipped from a distribution centre in Wackersdorf, Germany. The car kits are not sequenced but are batched for colour and specification. No buffer stock, apart from some fasteners, is kept at the plant and all production is allocated to dealers before each vehicle is built. The facility is in Chennai to take advantage of the good port, road and airport links – deliveries do not have to travel through the city from any of the transport hubs.

AMS visited the facility and talked with Stefan Hülsenberg, Managing Director of BMW Chennai about this, the 23rd BMW plant:

AMS: Many carmakers in India are looking to increase local content – what is your take on this? SH: We have two local suppliers, Lear for seats and a Johnson Controls/ Tata joint venture for door panels. We have an international purchasing office in Delhi tasked with finding suppliers for India and the whole BMW Group.

AMS: How is the standard of the workforce in India? SH: The education level of the labour pool in Chennai is very good. We chose our first 100 employees from 25,000 applications and found very good, well educated workers.

Every employee has at least ten years schooling plus three years further education. We do not want much turnover; we want people to gain experience in making BMWs and stay to use it. We have only four German staff in the plant. All the rest are local, which was part of our original planning. AMS: Are there any particular differences in the Indian market models of the 3- and 5-Series cars and has that affected assembly?

SH: There are no differences in the core specification. There are options of extra underbody protection and ride height, but this does not affect the dynamics of the car. AMS: Are you buying any production equipment locally? SH:We follow the BMW production system and use European equipment as in other BMW plants. We are using the FASTplant modular assembly system from Dürr, for example. In the future, we may look at local equipment as we expand production; we are not bound to specific suppliers.

GM launches second plant in Talegaon
General Motors India, incorporated in 1994 as a 50:50 joint venture with the CK Birla Group, became a fullyowned subsidiary of GM in 1999 when GMOC bought the remaining shares.

GM India produces the Chevrolet Optra Magnum (both petrol and diesel), the Chevrolet Tavera, the Chevrolet SRV, the Chevrolet Aveo, the Chevrolet Aveo U-VA and the Chevrolet Spark at its plant in Halol near Baroda, Gujarat. The capacity of the Halol facility was expanded to 85,000upa from 60,000 in April 2007 to meet increased demand for Chevrolet vehicles. In the meantime, construction of GM India’s second plant in Talegaon, near Pune in Maharashtra, is progressing fast. Planned to have an initial annual production capacity of 140,000 vehicles, the plant is expected to have started production by fourth quarter 2008.

AMS met with Karl Slym, President and Managing Director, General Motors India, and asked him how the GM manufacturing presence in India changed since the buyout of the joint venture with Hindustan in 1994? KS: There have been substantial additions to our investments in India, in manufacturing, staff, product, engineering, R&D and design. Today’s GM India is very different from what it was ten years ago – we have matured with the market and are moving further forward in refining our entire operations in India in line with the demands of the market here.

AMS: Many transplant carmakers in India are trying to achieve greater local content. Are you aiming for a high level of Indian-sourced content?

KS: Localisation is an ongoing process in GM India without which one can never be competitive in the market. Ours ranges from 40 to 98 per cent depending on the product. If you look at our levels of indigenisation today and compare them to a few years back, you will notice that we have an excellent supplier base in place in India, and we are looking forward to further localisation.

AMS: Many carmakers commented on the difficulty of finding reliable sources of high-quality castings and forgings from Indian suppliers. What is your experience of this? KS: We’ve seen some good work by Indian suppliers in these areas, and some less good, but this is true of any market in the world. Taking all things into consideration, we are happy with the availability of the castings and forgings sourced from India. This is already a focus for our local supplier development teams as we near the launch of our own powertrain plant in the first quarter of 2010.

AMS: How are you finding Indian machine tool providers and what percentage of imported tooling are you using? KS: Some expertise and equipment at our new facilities in Talegaon and Halol have come from India. In the meantime, on a smaller scale, our very own shop-floor technicians are constantly on the move every day to refine processes and invent special tools or better ways to execute a job with lower stress and time wastage. It is true that, in the areas of precision machine tooling, more development and experience is required by local suppliers, and our team of engineers in Bangalore are helping to accelerate this improvement.

AMS: How do the distances and the transport system in India impact on your manufacturing?

KS: Distances are bridged when you have an effective logistics system in place, and we’ve ensured that we do. The entire supply chain is well coordinated and GM’s global logistics system is probably one of the most extensive, effective and efficient systems in the world today. AMS: In which areas will you make the next big investments in tooling and machinery?

KS: Our new assembly plant in Talegaon celebrated the start of production in September 2008 for body, paint and assembly. Our next major investment will be on the press shop, which will be coming on line in 2010.

AMS: How do you tackle environmental considerations in manufacturing? Do you have dedicated ‘eco-teams’?

KS: Environmental concerns have always played a big role in the way GM manufactures cars anywhere in the world. India is no different. For example, Talegaon is the first automobile plant in the country to put in place a high-solid paintshop, reducing environmental impact and wastage greatly. We have also introduced a number of environmentally-friendly initiatives. An important measure is ensuring that there are people and processes that address improvements as an everyday part of our business. We were proud to receive the Certificate of Merit award from the Indian government for our energy conservation activities, a true endorsement of the extent of our efforts.

AMS: What about the labour situation? We know there are many highly educated graduates in India, but what is the dedication and organisation of the operator workforce like? KS: Out of the eight countries I have had a chance to lead a manufacturing unit in, I have never come across a more enthusiastic workforce. It is a huge competitive advantage. One can see that with growing demand, there is going to be a shortage of skilled technicians on the shopfloor. And this is why we have, for example, entered into a collaborative effort with the government of Gujarat to support and encourage ITI Tarsali, a technical training institute, with curriculum, visiting faculty, infrastructure and additional funds required to train skilled labour. This not only helps the local population around our plant in Halol with education and vocation support, but also ensures that the overall standard of the automotive workforce in this country goes up exponentially, while also offering better employment to the local population.

AMS: What are your managerial teams like?

KS: Our managerial teams are highly motivated, young and are allowed to work in a decentralised environment. Perhaps this explains why we’ve grown as a manufacturer so rapidly. From 2006 to 2007, GM India grew by 68 per cent in sales compared with an industry growth of 14 per cent. AMS:What is your impression of labour flexibility in India? KS: We’ve found that our employees are always up to the challenge when it comes to mobility and flexibility. Our new plant at Talegaon could not have began operating so quickly if it hadn’t been for the experience and contribution of people at Halol, which proves that once you have the commitment of your employees, you have the support to go ahead with bigger and better plans and succeed at them as well.

AMS: How do you go about your quality management? KS: We use GM’s standard quality management systems and processes that have proven successful all over the world. In India we have been able to couple that with the enthusiasm of the team with excellent results. Earlier this year these efforts were rewarded with three best-in-segment JD Power Quality awards and two second placed vehicles. Our entire portfolio placed either first or second, which was very exciting.

AMS: Who or what are your favourite manufacturing systems – apart from the GM Production System, of course?

KS: Halol is one of the lowest cost car production centres in the GM world, and Talegaon is also proving to be extremely cost-effective. When you combine the GM system with Indian skills and ingenuity, the result is probably one of the most effective manufacturing systems in the world.

Ford undertakes powertrain expansion
Ford started carmaking activities in India in 1996, with a 50:50 joint venture with Mahindra and Mahindra called Mahindra Ford India, which ended with Ford buying out Mahindra’s remaining stake in the company in 2005, after upping its stake to 72 per cent in 1998. Ford’s manufacturing plant at Maraimalai Nagar, 45km from Chennai, covers 350 acres (142 hectares) and has a capacity to manufacture up to 100,000upa of the Endeavour, Ikon, Fusion and Fiesta models.

The plant has stamping, body-in-white, paintshop and assembly facilities and is increasing its powertrain production to include exporting engines following an announcement earlier this year of a $500m (£293m) investment in a new 250,000upa engine plant, increased capacity in the vehicle assembly plant from 100,000 to 200,000, and a new small car, due for release in early 2010. The present output is 60,000 engines annually and in the next expansion, it will be scaled up to 250,000 by 2010. Though only diesel engines are currently being produced, the assembly line can be modified within four hours to produce petrol engines.

The engine assembly plant has created an additional 200 technical and engineering positions, increasing overall employment at Ford India to 2,300. The company has also added 25 new local suppliers to its supply network to support the engine assembly operations, which help to contribute nearly 50 per cent indigenous content to the diesel engines.

AMS met up with Michael Boneham, President and Managing Director of Ford India, at the SIAM convention in Delhi and visited Tom Chackalackal, Vice-President (Manufacturing), at the Chennai plant. We started by asking them about the powertrain expansion: AMS: Ford India has had most manufacturing functions in its plant, but powertrain has lagged behind – has the supply of good quality castings and forgings in India been a problem?

MB: The new engines will be locally CCC-sourced (cylinder head, crankshaft and crankcase/block) and machined. The tooling for the castings for the head and block of the new engine line has been sourced from European suppliers and we have begun getting supplies locally. The cylinder block casting has been locally sourced to Ford international quality standards and we are confident that the PPM will be competitive with imported blocks. As far as the logistics is concerned, we predict that the rainy season might slow transport down, so we build-in some extra stock to avoid problems, and continue to work with our suppliers to ensure they are close enough to the plant to avoid excessive inventory. The diesel engine crankshaft, which is a sintered casting, has to come from Europe as the technology is not available in India, but we do the finishing here. Petrol engines are completely localised for all parts and machining operations.

AMS: Do you see potential in the export markets from India?

MB: The diesel and petrol small-engine line, with a capacity of 250,000upa, will be fully flexible and will produce engines which suit the India, Asia-Pacific and Africa markets, which we see as strong markets for these economical engines. For the first time, we are going to have petrol and diesel engines on the same line. We have not yet decided where and when we will choose the export markets for Indianmade engines, we anticipate considerable export opportunity.

AMS: What is the skill make-up of the workforce here at Ford?

MB: Powertrain expertise is strong in India and we are very happy with the level of skill here.

TC: Lineworkers here are known as technicians. They all have basic school graduation and most of them have been with us for close to ten years. The diploma holders were hired from college campuses. Technicians often grow into team leaders and benefit from a one-year Ford course at a local engineering college. The best of them then go into staff positions and we also have an apprentice programme for technicians, working with a local college.

On the craftsman side, people who are in charge of machine processes can attract up to double the salary to go to other companies. To try and keep these people, we take them into material planning and logistics functions and out to the dealer service side of the operation. And they may be able to join other Ford operations around the world for training and new-model launch manufacturing programmes.

AMS: How much manufacturing equipment can you find locally? Or are you using Ford global partners?

TC: Originally, we got most of our equipment from Ford Europe. More recently, we have tried to get the Asian providers to supply. Ford has its own group of suppliers for China and for Mazda in Japan, for example. Some stamping dies have come from Ford Australia’s tool room, some from Ogihara in Japan and the underbody tooling has come from Telco in Pune, India. All body fixtures have come from overseas. The latest one we bought came from Germany, and we are sourcing the next one from Korea. For the paintshop we have been working with Dürr, who supply paint engineering for Ford globally, and we use BASF and PPG for materials. Furthermore, robots from ABB are being added in the paintshop and throughout the plant. In our diesel engine powertrain, we have not gone into transfer lines. We use MAG and Cross Hüller CNC machines. On the assembly lines we have a mix of international machinery. The conveyors are from a local Indian supplier as are the leak testing machines. We will be using transfer lines in the new engine facility, which will bring takt times down to near one minute. The process is modelled very closely on the Dagenham operation because it is so good, and to help ensure consistency throughout the group.

MB: On our lines we have the usual CNC machines, common around the world but, in among them, we have specialised machines, many of which were designed and built here, some by traditional vendors to Ford and others by Indian companies who have been very innovative, such as a very good honing machine from a local supplier. These Indian companies could well follow Ford to other places around the world.

AMS: What is your view on the balance between increasing automation and low-cost labour?

MB: Presently, we are 100 per cent manual in assembly and body-in-white, but are going to go to 35 per cent automated in the bodyshop and in the underbody, framing and underbody re-spot line. As we move towards more automation, the skills and knowledge of the technical staff will have to develop. We have the capacity to make the education happen for the workforce. Getting everyone to understand what happens when you reduce takt times significantly and have automation that must run efficiently will be a challenge, but the will is there, with us and with the workforce.

Mahindra & Mahindra goes global
The birth of Mahindra & Mahindra began when KC Mahindra visited America as Chairman of the India Supply Mission. He met Barney Roos, inventor of the rugged general purpose vehicle or jeep, and had a flash of inspiration: wouldn’t a vehicle that had proved its invincibility on the battlefields of World War II be ideal for India’s harsh terrain and its kutcha rural roads? The Mahindra brothers joined with Ghulam Mohammed and, on October 2, 1945, Mahindra & Mohammed was set up as a franchise for assembling jeeps from Willys. Since then the company has designed and manufactured many new models and is the market leader in utility vehicles in India, currently accounting for about half of India’s market, with a product portfolio that ranges from rugged, mass-transport utility vehicles to personal segment sports utility models like the Scorpio. In February 2005, M&M and Renault decided to join forces to produce and commercialise the Logan in India. The joint venture is a 51:49 partnership with a production capacity of 50,000upa. The Logan is produced at M&M’s plant in Nashik.

The company also exports utility vehicles to many countries in Europe, Africa and South America and has SKD and CKD assembly plants in Uruguay, Egypt and Brazil. Mahindra Navistar Automotives is also involved in a 51:49 joint venture with Navistar USA. Mahindra Navistar will manufacture the entire spectrum of commercial vehicles, ranging from 3.5 to 49 tonnes GVW/GCW. These products are developed to suit Indian conditions and big investments are being made in product development and in setting up a greenfield manufacturing facility at Chakan, near Pune. The company’s spirit can be encapsulated in the words of the poet Robert Frost, a favourite of India’s first Prime Minister, Pandit Jawaharlal Nehru: “The woods are lovely, dark and deep, But I have promises to keep, And miles to go before I sleep, And miles to go before I sleep.”

We talked to Louis Pereira, Senior Vice-President, Central Manufacturing Engineering, M&M, about some of the issues that face an Indian carmaker set to become a global player. AMS: How do you deal with the high levels of employee mobility in India and with retaining trained staff, both blueand white-collar?

LP:We are making no-poaching agreements with other automotive and high-tech companies and we are trying to keep salaries high enough to encourage people to stay with us. We compare our salary structure with other companies and stay competitive. It is difficult to make comparisons with other regions. For example, a GM line worker in Michigan, with all the benefits they enjoy, is paid US$75 to US$80 per hour, and GM is spending a lot of money on automation to offset these high labour costs and maintain quality and productivity.

We benchmark against Toyota and Hyundai, to help us strike the right balance between automation and labour.

AMS: What have you learned from these benchmarking activities?

LP:We have taken on board quite a few manufacturing practices, especially where inventory management is concerned. Furthermore, we have been looking at the lifespan of some machines, sourcing machines that can be updated, especially in machining centres where, for example, speeds are going up all the time. You have to be careful not to over-commit to today’s offering as technology is changing all the time.
AMS: How much Indian-made machinery do you buy?

LP: We have a lot of good companies in India making machining centres. We tend to buy from Japan, but there are Indian companies that are improving in speed and quality. In press shop, there are Indian providers of traditional press lines, but for high-speed press lines we have to go to Schuler. In the paintshop area, we have to look abroad for equipment and expertise.

Bajaj Auto’s new-age philosophy
As you near Bajaj Auto’s motorcycle plant in Chakan, in the Pune district close to Mumbai, you are struck by not only the clean, modern building design, but also the beautiful gardens surrounding the facility; complete with a large herb garden where medicinal plants may be ordered by members of the workforce.

This respect for nature and nurturing spirit runs right through the philosophy of the company, from its enlightened employment policies – it takes graduates to work on its lines but expects them to move on within two years – to its sponsoring of local health and infrastructure improvement schemes and establishing a state-of-the-art hospital near its plant in Aurangabad, Western Maharashtra: the Kamalnayan Bajaj Hospital.

The company started with a licence to manufacture Vespa (Piaggio) scooters and three-wheelers in 1961. This agreement expired in 1971 and Bajaj started developing its own models. In 1984 the company entered into an agreement with Kawasaki to switch to machines with fourstroke engines.

During the early 1990s, Bajaj’s judgement to abandon major scooter production was proven correct by the market, with demand shifting from scooters to four-stroke motorcycles, but the company was not fully prepared for this shift in tastes, not having the capacity to meet the new demand for motorcycles. At this time, Hero Honda dominated the 100cc market and Bajaj shrewdly chose not to compete with them and instead launched a 150cc model – unheard of in India at the time.

The Chakan plant was set up for this new model in 2001, to engender, as Shrivastava puts it, a new culture and attitude. All the company’s vendors were located nearby and it started with three key principles:
-To have no supervision in the plant;
-No quality control department in the plant; and
-No stores or warehousing
As this threw considerable responsibility on its suppliers, Bajaj decided on a single-sourcing policy for all parts. At present, around 95 per cent of parts are single-sourced and all the large suppliers are located within five kilometres of the plant. The plant keeps no buffer stock at all. Such is the organisation of the system that no supplier personnel work within the plant – this would be against Indian labour laws.

Design and development people from suppliers have worked on product and tool design and are located so close that problems can be addressed very quickly. AMS spoke with Pradeep Shrivastava, President, Engineering, and Sandesh M Tamhane, Senior Manager, Support Services, on a recent visit to the plant. AMS: I have heard from several carmakers in India that one great challenge for them is getting a reliable supplier of quality castings and forgings delivered on time. What is your experience in this area?

PS:We do not find it so difficult; there are many centres in India that specialise in castings and forgings for automotive applications. Two hundred and fifty kilometres from Pune is a huge casting and machining industry centre, we also have a centre like this in Gujarat. We have a number of good sources for low-pressure aluminium castings. At Bajaj we buy-in all our plastic mouldings, fabrications, castings and forgings from a group of 200 suppliers, a group that we have reduced from 800 over the past seven or eight years. This has given the remaining 200 more turnover and allowed them to invest in more technology, for example. AMS: How much India-made machinery do you use?

PS:We originally chose one type of machine in the plant; using a lot of Fanuc and Makino equipment. Some of our other plants use a lot of India-made machinery. Over the past seven years, India-made machining centres have improved enormously. These machines may not have the speeds of imported machines but, in terms of reliability and accuracy, they are good.

We have no qualms about using India-made machines and one company of note is PARI Robotics, which has many automotive applications and export products. If I were setting up a new plant today, I would have no problem in buying a lot of India-made equipment. AMS: So you will be doing this in the new Renault-Bajaj plant?

PS: Our partners, Renault, do not want to build a high-cost plant to make a low-cost vehicle, and they have left much of the equipment buying to us. We will certainly design and build the engine.

This new plant will keep only one and a half days of stock, in the Japanese style, although the new vehicle will mostly be built for stock and not to order.

AMS: Bajaj’s work in environmental management is admirable. How do you get the workforce to stick to your principles in this area?

PS: There are government regulations for factory emissions, air and water pollution and land management. Compliance with these is checked by government agencies, but a lot of Indian companies have started to adopt Total Predictive Maintenance (TPM) as a guiding principle. I believe that after Japan, Indian companies are the next biggest users of TPM and win the second highest number of awards for its implementation. Some of the pillars of TPM are safety, health and environmental protection, where you must set very stringent requirements to meet TPM targets – not just legislated objectives. This is a big movement in many plants in India as more vehicles are bought and greater awareness of global warming and air pollution develops. One example at Bajaj is brake linings. In India they are not required to be asbestos free, but from last year, Bajaj has changed to using asbestos-free materials in brake applications.

AMS:With the projected Renault-Bajaj joint venture you will be building a new plant. You may have seen in AMS magazine that Ford have installed large solar panels at some of their facilities and other carmakers are using wind turbines, for example. Are alternative power sources on your planning horizon?

PS: Speaking only from the Bajaj perspective, we have been a big promoter of the use of wind power. We have wind farms generating about 65 megawatts of power, which we then use. As for solar power, the investment is too great for us at present, but many of our plants use solar power for water, pre-treatment baths, paintshop and for the canteens and washing.

AMS then turned to Sandesh M Tamhane, Senior Manager, Support Services, to talk about labour management at Bajaj.

AMS: The rest of the world has an impression of excellent, skilled graduate engineers and IT specialists in India, but we don’t know as much about the operator (line-worker) workforce. Can you tell us how this area works at Bajaj?

SMT: We have about 15 per cent turnover in our line engineers, who are mostly diploma engineers, but we have a target of 20 per cent as we want them to be fresh. We do not want people to lose their enthusiasm by staying on the assembly lines too long – we think five years is enough. Then they can move on to more education or to become supervisors or managers within Bajaj. We would expect a worker to join us when they are 20 years old, and leave within five years.