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India clears road for generic car parts market

Reuters, New Delhi
Thousands of tiny shops in India's biggest auto components market do brisk business selling a bewildering array of spare parts for about a third of the official price charged by the likes of Toyota Motor Co or Volkswagen AG.
Generic parts sold by traders in places like old Delhi's Kashmere Gate market account for about a sixth of India's $6.6 billion after-sales components sector, 1HS Automotive estimates, but a recent move by regulators could boost that share.
Just as India has become a global hub for the manufacture of cheaper copycat medicines, the Competition Commission's ruling last month requiring car makers to supply parts more widely could encourage the production and sale of non-certified generic components in the world's sixth largest auto market.
"We have the ability to make good quality products, we have our techniques and this is our chance to prove it," said trader Umesh Seth, sitting in a poky store where hundreds of sheet metal parts wrapped in transparent plastic are piled on racks. "It is about time we get an equal opportunity."
The Competition Commission’s ruling has irked auto majors, who argue that a proliferation of cheap copycat components will undermine the safety and reputation oftheirbrands.
In developed markets such as Europe or North America, sundry spares like oil filters, spark plugs or shock absotbets are available from a variety of suppliers, keeping competition keen.
But in markets such as China and India, global car makers have maintained tighter control over the supply and price of spares, selling them through a limited network of vendors.
While car makers and their authorised dealers cite safety as the main reason, this practice has also allowed them to protect hefty margins on partsand repairs, while inflating the cost of car ownership forconsumers.
Regulators are now ending all that and the crackdown in India follows a wider, ongoing probe in China where some part makers are being investigated for colluding to keep prices high.
"I would like it if there is competition for the car companies," said Nirav Savla, a 29-year-old businessman from Mumbai who drives a Toyota Innova. “For small parts, I do not need to go to them."
In the Kashmere Cate market, a maze of lanes and alleyways lined with men loading handcarts with spares tightly packed in sacks, a generic set of headlights for Hyundai Motor Co's Santro hatchback costs 1,500 rupees, less than half the price of the manufacturers' original.
"There are all kinds of customers and we have something for every pocket, ” said a maker of generic bearings used in commercial vehicles. "They are smart enough to know which local parts are of good quality and which ones are not."
Some car makers argue that generic parts are often made with inferior quality materials, undermining performance and making them potentially hazardous, and there is need for safety standards for generics in the after-market before it is opened.
" Blindly following the West in one aspect without plugging the other gaps is not the solution," said Jnaneswar Sen, senior vice president sales and marketing at Honda Motor Co's local unit, one of 14 car makers fined a total of $420 million.
Besides the penalty in August, the anti-trust regulator also directed car makers - including Honda, Ford Motor Co, Maruti Suzuki India Ltd and Tata Motors Ltd - to start providing spare parts more widely.
Some of the companies have decided to challenge the order.
"Today you either have counterfeit parts or you have sub-standard parts,” said Sen. "We are not against competition but customer safety also cannot be ignored."
The auto makers say conditions in the Indian market cannot be compared with mature markets such as the European Union, where tighter regulation promotes both competition andsafety.
Michael Mayer, director of passenger cars at Volkswagen India Pvt Ltd, said he expected the Indian market "will now go through a development phase".
"If we put the cart before the horse we will be seriously compromising on safety," Vikram Kirloskar, vice chairman ofToyota Kirloskar, the Japanese auto maker's local unit, told an industry conference this month.
Authorised parts makers like Bosch Ltd and SKF India Ltd that supply auto makers agree thatsafety regulation iskey.
" It is always a question of trust in the automotive after-market and if it does not have guidelines you do not know what you are measuring against," said Gunter Weber, regional president, automotive after-market at Bosch.
The prize is large. India's overall auto components market - including certified makers who supply directly to manufacturers - is worth $35 billion annually and estimated to more than double by2020 to $85 billion.
Generic parts are typically supplied by local companies making copies of the original, or imported from countries such as China and Taiwan. Some certified component makers who supply to car makers also sell in the after-sales market.
According to traders, some certified suppliers circumvent restrictive agreements with car makers that do not allow them to sell in the after-market by repackaging the same products as generic.