Smaller auto parts units hit by soaring input costs

Rise in prices of steel and aluminium alloy by about 40-50 per cent contributes to the industry’s depleting margins.

Small and medium enterprises (SMEs) in the auto component manufacturing sector are reeling under the pressure of spiralling prices of steel and aluminium alloy, which make up 60 per cent of their input costs.

According to the Automotive Component Manufactures Association (Acma), which is the nodal agency for the Indian auto component industry, representing over 600 companies, the pressure on manufacturers has been intensified as the result of a demand for price cuts from customers.

“As steel and aluminium alloy accounts for 60 per cent of the raw material costs in auto component manufacturing, there is definitely an overall rise in input costs which is hitting the sector hard. Moreover, while in the last one year the rise in prices of steel and aluminum alloy is about 40-50 per cent, customers always expect price drops,” Acma Executive Director Vinnie Mehta said.

The rise in the input costs has contributed to the industry’s depleting margins too, he added: “The raw material prices have a significant impact on margins, though it depends on a lot of other factors also. But this is obviously one of the reasons for the depleting margins the industry is facing, which is anywhere between five and six per cent.”

However, Mehta pointed out that despite the fact that the hike in raw material prices was a global phenomenon, exports are on the rise, as automobile markets in the United States and the European Union are recovering after the recession.

“The price rise is not a local but a global phenomenon, but there is a sort of revival in the US and EU markets which were hit hard by the recession. And our exports are also on the rise. While last year exports by Indian companies touched $3.8 billion, we are expecting exports to increase to $ 4.5-5 billion this year,” he added.

Acma President Srivats Ram said that auto component manufacturers have no option but to pass the burden of higher raw material prices on to vehicle manufacturers. “The impact of this rise in steel is significant. We need to pass on this increase to customers,” he said.

Srivats Ram, who is also the managing director of Wheels India Ltd, a manufacturer of steel wheels for passenger cars, utility vehicles, trucks, buses, agricultural tractors and construction equipment, serving both domestic and international customers, added, “All auto component manufacturers are in talks with suppliers and customers individually, and as a manufacturer I will also be approaching.”