Automobile manufacturers are not going to reduce vehicle prices following the government’s recent move to lower import duty on key raw materials, as well as levying an export duty on steel, all of which are expected to rein in rising input costs. However, prices may not be hiked further, industry executives said.
Maruti Suzuki Indi’s senior executive director – marketing and sales – Shashank Srivastava said, “With commodity prices increasing in the last one-and-a-half years, Maruti has increased the prices of its vehicles but only marginally. Our total price increase in the last two years has been about 13%-14%, whereas the increase in commodity prices has been much higher. In that sense, the increase in commodity prices has not been passed on to the consumer in the last one-and-a-half years.”
Steel, plastic and other raw materials comprise roughly 75%-77% of the production cost of a passenger vehicle.
“Steel prices used to be Rs 38 per kg about one-and-a-half or two years back, and now they are around Rs 80 per kg. An increase in export duty will increase the domestic availability, which will hopefully reduce the spot prices for steel,” Srivastava said, adding that when spot prices decrease, the contracts that manufacturers have with steel manufacturers for the next quarter are at a lower price.
According to Srivastava, even if there is a drop in steel prices, it would still be higher than what it used to be one-and-a-half or two years back.
Sanjeev Kumar, head – MHCV, Ashok Leyland, said that the government’s recent decision to lower import duties on some of the major raw materials like coke, used in steel manufacturing, will help steel manufacturers in managing their costs.
“As you are aware that steel prices have risen substantially in the last one year, and we are unable to pass on these costs to customers as it would make it unviable for end customers. Having said that, we are constantly monitoring the situation,” Kumar said. Most of the manufacturers have already increased prices of passenger and commercial vehicles twice so far in CY2022 — first in January and recently in April.
“The decision to cut import duty on steel is a welcome move for the auto manufacturers as they have been reeling under cost pressures for quite some time now. It should shield them from international externalities and stabilise the fluctuations in input costs,” said Suraj Ghosh, director, mobility, S&P Global.
However, Ghosh noted that with the kind of cost pressures and uncertain sourcing environment that the auto manufacturers are in, it is unlikely that they will announce price cuts.
Grant Thornton Bharat partner and auto sector leader Saket Mehra said that the government’s recent announcements will provide some respite to the auto and auto component manufacturers, and enable better deals with steel manufacturers.
While manufacturers have already been burdened with high commodity prices and supply chain disruptions due to the semiconductor shortage, Mehra said that this move will allow them to bring some balance in managing input costs. “This reduction in cost may or may not be passed to the end consumers,” he added.
