New Delhi: Looking at the current commodity trend, the top executives of Indian auto OEMs did not rule out the possibility of price hikes because of the steep increase in raw material prices, including that of steel and precious metals.
Most of the automotive companies hiked prices by 3%-4% across categories during the first week of January 2021 as a part of their general business strategy.
The industry saw another round of price increases in April to offset rising input costs especially of steel, aluminium, and plastics. Maruti Suzuki, Renault, Hero MotoCorp, and Nissan increased the prices of their vehicles this month.
Auto industry executives believe that price increases taken earlier may not be enough and therefore the industry is expected to see a third wave of price increase sometime in Q2. They also reckon that such frequent price rise could dent the sluggish recovery in consumer sentiments.
“We have done two price increases in the last 6 months and another one is happening. The steel companies are talking about price increases in July. Additionally, prices of precious metals such as rhodium have also gone up. All of this is compelling us to further increase prices that will certainly lead to reduced demand,” Nitin Seth, chief operating officer, Ashok Leyland, said at the Today News 24panel discussion – ‘Recap FY21 and Mission FY22’ – on Wednesday.
After the BS-VI switchover, the extent of steel, plastics and rhodium which go into the production of vehicles have increased significantly, Seth said underlining that constant rise in input cost is causing a cascading effect on the operating performance of the companies.
He pointed out that upcoming stringent emission norms will require more rhodium in catalytic converters of the vehicles. Rhodium is one of the rarest of the platinum group metals that is mostly used in emission-controlling automobile catalytic converters.
“With the impending norms of CAFE-II, CAFE-III and the RDE which are going to come in 2023 you could expect a steep increase in input cost and ultimately in the vehicle prices,” he added.
Metal prices have seen a phenomenal gain in prices in the past 8-9 months. For auto companies it has become difficult to sustain the prices of their commodities for a long time as it would impact their gross margins.
While the domestic steel prices have increased sequentially by about 19% in Q3 FY21 and by another 19% quarter-on-quarter in Q4 FY21, the price of plastic has gone up by 60%-80%. Spot prices for rhodium touched a record high on March 23 at $29,800 an ounce registering a gain of around 180% over last year, as per British science and chemicals company John Matthey.
Moreover, companies are also seeing higher fuel prices that have a direct impact on vehicle ownership cost.
“The biggest concern for us is how to keep the cost of acquisition of the cars down as the cost of running vehicles is also going up with high fuel prices. If our industry has to grow along the expected lines in the long run we need to manage the cost of acquisition,” Shashank Srivastava, executive director, Maruti Suzuki India Ltd, said.
Besides, it is not only the price rise but the limited availability of raw materials such as semiconductor chips also has created a supply-demand crisis. “The semiconductor shortage is, I think, a short term phenomenon as the capacities became a little disrupted because of the wrong predictions made by the OEMs across the world when the pandemic happened,” Srivastava pointed out.
