Inflation, rising rupee also contribute to the sector's woes. | |
| Weighed down by spiralling input costs, the automobile industry is staring at another slowdown this year also. The industry saw a five per cent decline in its sales last year. |
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| Apart from prices of raw materials reaching an all-time high, there is a liquidity crunch in the automobile consumer market. Inflation has affected buying decisions. Finance companies are getting increasingly reluctant to grant loans. |
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| The automobile sector is also facing slower growth in the export market: A weakening US dollar has reduced margins. |
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| Manufacturers are left with no option but to pass on the price rise to customers. Almost all manufacturers and allied sectors, like auto-component makers, say the impact of inflation has become unbearable. |
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| Mahindra and Mahindra, Tata Motors, Maruti Suzuki, and Hyundai say they are trying to absorb price hikes but fear a bulk will be passed on to buyers. |
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| Large, medium, and small-sized auto component makers are also saying the same. |
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| Sales in March were not as high as they traditionally are. That, despite the finance minister announcing a substantial cut in excise duty, from 16 per cent to 12 per cent. |
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| The passenger-car segment saw a rise of just 12 per cent, while the two-wheeler segment recorded a fall of eight per cent. |
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| Pawan Goenka, president, Mahindra and Mahindra (automotive sector), says: "I haven't seen such a price rise in raw materials in as many years as I can remember. We will witness a lower growth in the first six months of this fiscal." |
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| Market watchers and analysts say high input prices can be absorbed to a large extent by manufacturers. But, they add, small and medium-sized components makers will have a tough time as their margins are already narrow. |
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| Vishnu Mathur, executive director, Auto Components Manufacturers Association (ACMA), said, "A price escalation of about three to four per cent is understandable. But a sudden spike of 25-30 per cent within three months is not. Most companies are renegotiating prices with OEMs (other equipment manufacturers). If matters are not sorted, the sector will face a slowdown. Component makers are already facing negative profitability for the past seven to eight months." |
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Prices of essential commodities like steel, copper, alloys, pig iron, coke, ferro manganese, ferro alloys, and rubber, crude oil have risen by 30-70 per cent in the past few months.
| ROADBLOCK | | Product | Price hike
(%)* | | Iron | 60 | | Met Coke | 32** | | Shredded Scrap
(used for alloys) | 53** | | Ferro Coke | 70** | | Cast Iron Scrap | 47 | | Pig Iron | 46 | | Coke | 42 | | Other Ferro Alloys | 30 | | * From Aug 2007-March 2008
** Price hike in the last three months alone |
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| According to an ICRA report, a fall of 60 and 40 basis point was noticed in the PBT and PBDIT margins of auto component manufacturers during the quarter ended December 2007. |
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| Surinder Kapur, chairman, Sona Group, said, "Prices of steel cannot be absorbed. If situation persists, it can lead to high prices of vehicles." |
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| Even the recent reduction in steel prices by Rashtriya Ispat Nigam and Tata Steel has not helped the auto industry. |
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| Products on which prices were cut are not used in manufacturing vehicles. |
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