Auto Ancillaries : Business and Financial Risk Analysis

BUSINESS RISK ANALYSIS 

Customer Concentration Risk
Most of the auto ancillary units face customer concentration risk. Due to high dependence on few
customers, the performance of their customers is important for the auto ancillary unit. Diversified
customer base would result in lesser volatility and less correlation performance with specific
OEM.

Performance of the OEM
 Past and expected performance of the OEM as well as share of OEM in the automobile market
should be considered. Expansion plans helps to understand the increase in potential orders.

Balance between direct sales to domestic OEM, Export and Aftermarket
Perfect balance with direct sales to domestic OEM,  export and aftermarket ensures smooth
functioning of the auto ancillary units in various business cycles.
Position & Significance in the Value Chain
Position of the auto ancillary unit in the value chain is important to understand its significance in
the value chain. Higher the position in the supply chain ensures lesser threat of new entrants and
less risk of price erosion.

Technology & Processes
Technology used by auto components in the developed countries is much better than developing
countries like India. Japanese automobile industry  has influence on the Indian automobile
industry and its allies. OEM also checks the quality management practices that are adopted  by
the auto ancillary units.OEM also ascertains as to whether the auto ancillary unit practices like Six Sigma, JIT, etc are practiced.

FINANCIAL RISK ANAL

One follow the standard criteria used in all manufacturing companies for the financial risk 

analysis of the auto ancillary industry. Here various financial ratios are tracked to have an idea of
the performance of the industry.

CONCLUSION 

The key success factors of the Auto Ancillary industry are

Customer Concentration Risk

Position & Significance in the Value Chain

Technology & Processes