Chennai has emerged as India's Detroit

As the Indian automobile industry is making its achievements felt in the global arena through exports of small cars to Europe, Tamil Nadu, the most industrialised state in South India is at the forefront of this movememt.

And right in this southern port town within a radius of 50 to 60 km, an automobile hub has quietly emerged in Tamil Nadu which traditionally boasts of a strong engineering and auto-parts industry.

Ford Motor Company’s major foray in 1995 (initially it was a 50:50 joint venture with Mahindra & Mahindra until Ford picked up majority stake in 1998 to be renamed Ford India) with its first passenger car facility in India at Maraimalainagar, 45 km South of Chennai, under the first Jayalalithaa regime, was the big trigger point.

This was soon followed by another big ticket investment by Korean car maker Hyundai in 1996, setting up its plant near Sriperumbudur (near Chennai).

Today, seven of the 20 top global auto makers have moved into Chennai’s vicinity to earn it the sobriquet of ‘Detroit of India’. Or is it already?

Major players

These major vehicle manufacturers include, besides Ford and Hyundai, the German luxury car maker BMW, Daimler, Mitsubishi and last but not least, the more recent grand Renault-Nissan alliance plant at Oragadam near Sriperumbudur. (See Table) The French car maker Peugeot has also shortlisted a place near Chennai, among locations in other states, for its car plant. 

With these giants’ entry, the growth in the automobile and auto-ancillary sector has been phenomenal. This prompted the State’s Deputy Chief Minister, M K Stalin to sum up at a recent Industry interaction here that: “Today, Tamil Nadu has become the largest manufacturing hub, both for electronic hardware, consumer durables and automobiles.”
He quoted a study by mobile phone maker Nokia, which also has a large plant at Sriperumbudur, that “the total cost of manufacturing in Chennai in India is much cheaper than even in China, by over 11 per cent in net productivity value (NPV) terms.”

Four Tamil Nadu-based car companies together manufactured 5,71,136 cars in the April-December 2010 period accounting for 42 per cent of the country’s car production. Exports have also grown many fold as Hyundai exported 1,76,951 cars and Nissan exported 21,283 cars in the April-December 2010 period. But, Rome was not built in a day.

Strong engineering base

What made this dramatically new profile for Chennai — once a sleepy fishing village until the British made it its base on the East coast-possible? Historically, manufacturing in this region started in 1840, with Simpsons pioneering India’s automobile industry including making rail coaches and diesel engines.

According to government sources, in 1948, came Ashok Leyland to first assemble ‘Austin cars’. But today, a flagship of the Hinduja Group, Ashok Leyland with three plants in Tamil Nadu itself is one of the largest makers of trucks, buses and off-road vehicles. The TVS Group had burst into a robust phase in the 1960s’, setting up a number of auto-components manufacturing plants. Thus a sound engineering base ably supported by a skilled workforce took shape.

While the foundations were laid due to the far-sightedness of the then State Industries Minister, R Venkatraman, since the mid-1960s the DMK Government continued that industry friendly proactive trend in industrialisation. Since the economic liberalisation in 1991, AIADMK leader, J Jayalalithaa managed a coup, by getting Ford to invest in the state amid stiff competition. The government under Karunanidhi continued and consolidated the industry-friend trend.

It is thus a cluster of factors – investment-friendly regimes, good infrastructure, proximity to a large port in Chennai, a structure of flexible and supportive industrial policies and incentives, particularly for mega integrated automobile projects investing over Rs 4,000 crores in 7 years — have pitch-forked Chennai to a new orbit, point out sources both in industry and in the government.

The state government has also steadily accumulated land bank through state industrial promotional agencies over the years that avoided the conflict with farmers like the one happened in Singur in West Bengal. Add to it good supply of trained manpower with engineering background.

In the last 15 years or so, Chennai has become an attractive destination of Foreign Direct Investments (FDI). Government officials estimate that since May 2006, automobiles and auto-components industry is a huge Rs 21, 900 Crores. It is almost five times the investments attracted by the State during the previous 15 years, they pointed out, adding, the total employment potential in the new projects alone is 1.20 lakh.

Foreigners love Chennai

For the automobile sector alone, these FDI outcomes translate into, Chennai: “now emerging as one of the top 10 global manufacturing centres,” officials say. By the end of this fiscal 2010-11, latest trends show that the automobile hub in Chennai will have an installed capacity to produce 12.80 lakhs cars and 3.50 lakh commercial vehicles per year.
This is huge for an area already accounting for 42 per cent of India’s passenger car production. In addition, FDI into electronic hardware manufacturing in this belt including Dell, Nokia and Samsung’s is a significant Rs 12,000 crore.

On top of this, while USA’s Caterpillar, Japan’s Komatsu and South Korea’s Doosan have chosen Chennai to establish large earth moving equipment manufacturing plants, the State now accounts for 35 per cent of India’s $18 billion worth auto-components production, vouchsafes Tamil Nadu Industries Department Guidance Bureau Executive Vice-Chairman M Velmurugan. From, TVS, Rane and Amalgamations to Robert Bosch, it is a mixed bag.

Adding to these is a very critical infrastructure – a world-class Rs 450 crores ‘National Automotive Testing R &D Centre’ coming up at Oragadam. It will give vehicle manufacturers a range of facilities including to test design, safety emissions and performance standards. Hitherto, they had to go all the way to Pune for validating such parameters and this is one factor that will be crucial to place India on the global auto map, officials say, adding, vehicle tyre majors are also pitching in to ride this bull run.

Export hub

“It (Chennai-Sriperumbudur-Oragadam) is already an automobile hub with so many companies. Its location and access to a sea port is a big plus,” said a spokes person for Hyundai Motors, which with a production of 6 lakhs passenger cars per annum last year exported 48 per cent of its cars. Nearly 50 per cent of the Korean firm’s small cars are exported to European Union.

The Renault-Nissan Alliance, is adopting a similar strategy with its new car ‘Micra’, destined for both the domestic market and exports to over 100 countries in Europe, the Middle East and Africa. “Our Chennai plant thus represents a key milestone for the alliance in India,” reasoned Nissan Motors global chief Carlos Ghosn, when their Oragadam plant with annual production capacity of 4 lakh units went into stream in March last year.

Early bird Ford India too recently expanded its manufacturing capacity to two lakh passenger cars per annum, besides setting up a separate engine plant making 2.50 lakh units per year (mainly low displacement engines). It is all set to export its compact car ‘Ford Figo’ to 50 markets in the world. A spokes person of the company said that Ford is ramping up India operations to create an export hub for small cars and engines.

Though there are some new issues for these auto biggies like delay in constructing a dedicated freight corridor from production area to Chennai port for direct exports, and the recent bid to organise workers by Central Left Trade Unions in the belt, there was no thinking now to shift Hyundai’s expansion plans to Gujarat, another investor-friendly state.

But industry observers say that sustaining this niche in the automobile sector by Tamil Nadu will not be easy with the shortage of power and erratic power supply. The spate of strikes in some of the factories are also raising concerns over whether the Government would go back on its promised flexible labour policy for SEZs’.

Articulating these anxieties in the wake of the 2008 global financial meltdown, the latest Tamil Nadu Economic survey summed up the state’s industrial sector predicaments: “Appreciation in the value of the Rupee against the US dollar, interrupted power supply, increased bank rate and labour issues are the reasons cited for the (manufacturing group’s) setback,” the report underscored. Becoming a ‘Detroit’ has taken so many years, but staying there seems equally challenging for the State.