Auto cos likely to raise prices as weak rupee dents margins

Indian car makers, who import car parts from America, Europe and Japan, are considering a price hike between 1-2% as they pay more for imports on weakening Indian rupee, which in turn hit their margins. Of four car makers FE spoke to, three ? Maruti Suzuki India, Hyundai Motor India and Honda Siel Cars India ? said a vehicle price increase is not ruled out, but did not say when they will increase prices. The fourth, General Motors India, will look at a price increase after the October festival season.

Yen has appreciated by around 3% against rupee in the last one month and around 10% in the last three months. From this year?s high of 44.07 on August 1, 2011, rupee declined 9.21% against dollar, and 4.86% against euro. At 4.00 pm on Wednesday, the rupee was trading at 48.13 against the dollar, 65.81 against the euro, and 0.63 against the yen. Car makers import 30% of their components ranging from safety equipment to high technology parts from the US, Europe, Japan, Thailand and South Korea.

?Auto companies have long term contracts with risk covers and nobody has pressed an alarm button yet,? said Vinnie Mehta, executive director at Automotive Component Manufacturers Association of India or Acma, an association of 600 auto parts makers. ?But if the current situation persists, one needs to wait and watch.?

?The yen has been strengthening against the rupee, and so has been the dollar,? said Jamal Mecklai, chief executive at Mumbai-based Mecklai Financial Services, a consultant focusing on treasury risk management. ?So, it?s a double whammy for importers.?

A price rise will further weaken car sales as high interest rates and fuel prices have already discouraged customers from buying cars. In the first five months of this financial year 2011-12, passenger car sales fell 1.3% to 7,43,358 units over the same period last year.

Overall, passenger vehicles (PVs) sales, including utility vehicles and vans, for the same period grew by just 2% to 9,77,201 units over same period last year, the Society of Indian Automobile Manufacturers or Siam said on September 9.

?Movement in Japanese yen and commodity prices are putting pressure on our margins,? said Mayank Pareek, managing executive officer, sales and marketing, Maruti Suzuki India, the country?s largest car maker. ?Naturally, we would like to adjust our production and control cost.? A vehicle price increase is also not ruled out, he added.

Maruti Suzuki imports its auto parts primarily from Japan. Between April to August 2011, Maruti Suzuki?s sales fell 7% to 3,94,273 units, according to Siam data.

A weakening rupee may hurt their margins, car makers said. ?We have not taken any decision yet, but there is a pressure on the bottom line due to the currency movement and commodity prices,? Arvind Saxena, director, marketing and sales, Hyundai Motor India, said.

?Rupee depreciation will put pressure on companies? margins and they would have to undertake a price increase in a bid to ease out its impact,? said Mahantesh Sabarad, senior analyst at Mumbai-based brokerage Fortune Equity India.

?We would increase prices by 2% immediately after the festival season,? confirmed P Balendran, vice-president and director – corporate affairs at General Motors India. ?During the festival season, we plan not to increase vehicle prices.?

According to Balendran, the industry is faced with high interest rates, rise in petrol prices and now currency fluctuations. ?We would have to take this vehicle price increase to ease out the mounting pressure on our margins,? Balendran said.

Jnaneswar Sen, senior vice president – sales and marketing at Honda Siel Cars India, said, ?These are spot changes and since all auto companies have a forward cover, we are not seeing an immediate impact.?

Honda Siel Cars India imports from Thailand, Japan and Indonesia after making 80% of parts in India. ?There is, however, a concern and current currency movement will start putting pressure on us, if the situation persists,? Sen added.

Analysts, however, say the price rise is an eye wash. ?Any increase, following a heavy discount, will be just an eye wash, ? VG Ramakrishnan, senior director, transportation at consulting firm Frost & Sullivan.

But, car makers can heave a sigh of relief as metals and rubber have softened in the September quarter compared to the same period last year.

?Metals have come down by 5-10% and rubber is stable at R230 a kg,? said an analyst with a Mumbai-based brokerage, who did not want to be quoted.