The rupee depreciating by 8% since April, oil prices hovering around $130 and the government levying an additional excise duty on cars above 1500cc (including on the ones that are imported), has put pressure on the import margins of various manufacturers.
Consequently, while some players have already announced a price increase, others are working on the quantum of increase and are expected to revise the prices soon. “With depreciation in rupee, imports of both completely-built-units (CBUs) and components have become costlier. This is expected to squeeze the margins of various manufacturers by 5%-7%,” PriceWaterhouse auto analyst and partner, Abdul Majeed said. “There are several factors that are working against the industry and are impacting our import margins. Consequently, we have partially passed it on to the customers and have hiked the prices of Honda CR-V (Honda’s only CBU in India) twice since then. The first increase of Rs 10,000 was done last month and after the increase in excise duty, there has been an additional increase of Rs 8,000-Rs 9,000.
While General Motor India has increased the prices of Captiva by Rs 18,000, Hyundai Motor India is mulling to announce the revised prices of Tucson shortly.?”Even margins on the knock down units that have an import content as high as 70% are under pressure and all this is compelling manufacturers to resort to price increase on CBUs that attract an import duty as high as 110%,” Majeed said.
For instance, Japanese auto giant Honda has import content as high as 70%. While, company’s largest selling Honda City has a localisation content of 80%, Honda Civic is around 70% localised as compared to Honda Accord that has a localisation content of only 30%-35%. Likewise, General Motor India has a localisation content ranging from 50%-60% across its different models, lowest being in Chevrolet Optra.
According to a Mumbai-based analyst, import margins will continue to be under pressure in the next one or two quarters as well as there are no sign of easing oil prices which are expected to go up to even $200 a barrel by the end of 2008. “Oil prices are spiralling and this is expected to further escalate the cost of transportation which in turn will force the original equipment manufacturers (OEMs) to increase the prices further to minimise the impact,” he said.
“However, for players like Maruti, who are selling Grand Vitara at absolutely no profit, there will not be much impact as the company will pass on the entire burden on to the consumers to maintain its margins,” he adds. The rupee had touched a 13-month low of 43.21 on May 22 and since then the central bank has tried to keep it stronger than 43 a dollar. Despite this, for the year starting April 1 and till today, it has depreciated by 8% as against an appreciation of 12% in 2007-08.
