Rising material cost forces motorcycle makers to increase prices

Bajaj would suffer a margin loss of 80 bps on account of cost burden

A series of price revision in ‘motown’ has started due to increase in the prices of raw materials. India's largest premium motorcycle maker, Bajaj Auto has increased prices by Rs 500 across range and the suit is likely to be followed by TVS Motor Company and Hero Motocorp.

The step has been taken after an increase in prices of steel and aluminium. Speaking to Business Standard on the sidelines of an event, Eric Vas, President, Motorcycle Business, Bajaj Auto said: "With material prices of oil, steel and aluminium going high, it is very difficult for us to scrap cost and ultimately we have no option other than to shift the burden onto the customer."

Material cost accounts to almost 68 per cent of the vehicle cost where steel accounts for almost 50 per cent is the total cost involved in sourcing raw material for manufacturing motorcycles. Bajaj Auto that maintains a margin of 18-20 per cent across its range would have to suffer 80 basis points (bps) in margins if the cost burden would not have been transferred.

In second quarter, prices of aluminium and copper went up by 5.25 per cent and 12.25 per cent to $2,006 and $6,352 per tonne respectively, while domestic steel prices inched up 2 per cent to Rs 41,817 per tonne. According to auto experts, Carmakers still have leeway to marginally push prices with the intent to recover cost but for motorcycle makers even a small bump in prices matters due to close competition.

According to news reports, TVS Motor Company is likely to increase prices in November across models to the extent to Rs 300. The company had raised prices in September by Rs 250 to Rs 300.