Cost-cutting is the flavour of the season in Motown. With high raw material prices and declining demand thinning their margins, leading automakers?including Maruti Suzuki India Ltd (MSIL), Hyundai Motor India, Tata Motors and Hero Honda, to name a few?have started looking for ways to cut costs.

Vendor rationalisation, inventory control, product redesign, platform sharing, product-mix rejig and production cut are a few weapons being deployed by the industry to battle costs.

Obviously, vendors are the first targets for cost saving. Vendor rationalisation and a renegotiation of prices with main suppliers are under way at many companies. Industry sources say Mahindra & Mahindra (M&M) has reduced the number of vendors from 220 to around 150 and Maruti Suzuki, from 370 to 215. ?Over the last five years, Maruti has consolidated its vendor base and had recently renegotiated with its suppliers for a lower hike in raw material prices and components,?? says an industry source.

An Ernst & Young survey says, at the manufacture level, raw material costs for key players such as M&M, Ashok Leyland, Tata Motors, Maruti Suzuki and Hero Honda have increased by an average 19% year-on-year in the first quarter of 2008-09. A year ago, the rise was only 10%.

For Hyundai, it is the ?single vendor? and ?just-in-time? inventory policy that have helped it reduce costs. Under the single vendor concept, the company sources a particular part from a single supplier, as it feels that high-volume orders to one vendor will automatically bring down costs.

Moreover, in order to control its inventory levels, the company procures material in terms of hours from its local suppliers. Even players like Maruti, Bajaj Auto and Toyota Kirloskar Motor have a similar kind of arrangement with their suppliers. For instance, Maruti procures components from its local suppliers three times a day and Bajaj does it 10 times a day. Toyota has reduced the inventory level from four days production earlier to three-and-a-half days now.

Since raw material prices have risen, companies are looking for savings in material use. There are two options here. One is to reduce the weight of a component by redesigning it?weight is an important determinant of a part?s cost. Another is to use alternative materials that cost less.

Says NK Minda, managing director of Minda Industries, an autoparts manufacturer, ?We are working with Maruti to develop horns that would give the same output but will have lesser a diametre and hence lesser weight. For instance, currently a 95-millimetre diameter horn weighs 200 gm but when its diametre is reduced to 80 millimetre, the weight comes down to 150 gm.?

This modification is part of Maruti?s recently launched ?one gram, one component? initiative under which every parts supplier has to make lighter components, even if that meant a reduction of just a gram.

Rico Auto is focusing on increasing the number of components produced from a given amount of metal. The company had recently scored a yield improvement of 15-20% by redesigning an engine component casing.

Recently companies have started looking for cheaper materials that can be used as a substitute in various components. For instance, companies have started using palladium instead of platinum and rhodium in exhaust components after palladium prices dipped by 5% and platinum prices rose by 23% in the last one year.

The trend of sharing vehicle platforms across products and categories is also gaining popularity among manufacturers. Such sharing helps companies to reduce costs by lowering design, engineering and product development expenses, besides enabling a faster launch of new products and upgrades.

As per E&Y estimates, sharing of platform has helped companies to come up with new products/upgrades within 8-12 months in comparison with a new car development cycle of around 36-42 months. This approach also helps a manufacturer to do combined sourcing, since a huge proportion of components are common between different models. Such sourcing enables a

company to leverage the benefits of economies of scale.

For instance, Maruti Suzuki has a common platform for Zen Estilo, Alto and the Wagon R and Tata Motors share the Indica platform with Indigo as well. Though Renault India, the joint venture partner of Mahindra for Logan, is not looking at other products with M&M, the company is planning to use the Logan platform to develop new products at its upcoming plant in Chennai.

Another drive towards improving margins is rationalisation of product-mix. The bias is now towards manufacturing high-end models, which fetch higher margins.

Some desperate efforts at cost-cutting are also there. Companies have either reduced the number of working days or shut down their plants temporarily to control inventory and cut costs. Ashok Leyland, a commercial vehicle manufacturer, had recently announced three-day work-weeks at its plants while Tata Motors has shut down its Jamshedpur plant for three days to keep commercial vehicle inventory under control. Even Mahindra-Renault had shut down its Nasik facility around Diwali, though the company calls it an annual maintenance closure.

Such cost-cutting measures are avoidable at a time when leading automakers have reported steep declines in profits. Maruti?s second quarter net profit, for instance, fell by 36.5% in the second quarter. Tata Motors too registered a dip of 34% in net profit in September quarter of this year. But the silver lining is that the forced cost savings, brought about by a cyclical commodity boom and demand slowdown, will make companies more efficient. That will be a long-term gain they would retain, even when the cycle turns.