India’s biggest car maker Maruti Suzuki India Ltd will take a call on increasing the price of its line-up by the end of this month after completing negotiations that are under way with suppliers of increasingly expensive raw materials such as steel.
Rival manufacturers such as Fiat India Automobiles Pvt. Ltd and Toyota Kirloskar Motors Ltd have already announced a price hike as rising demand for steel, rubber, aluminium and copper push up the prices of such inputs, putting car makers’ margins under pressure.
“We are currently negotiating with our suppliers for the second half—Q3 and Q4—and the contracts will be finalized in the next few weeks,” Ajay Seth, chief financial officer at Maruti Suzuki, told Mint. The company will decide on a price increase after the discussions, he said on the sidelines of the launch of the Eeco, Maruti’s new multi-purpose vehicle.
Typically, Maruti negotiates steel prices for six months with its suppliers and prices of other commodities are either hedged or left open, he said, adding that the company expects commodity prices to harden further.
Prices of steel are rising. Tata Steel Ltd, India’s biggest producer of the alloy, increased spot-market prices of its products used to make automobiles and appliances by as much as Rs1,500 per tonne early in the new year.
Prices of rubber, aluminium and copper rose 15%, 13% and 23%, respectively, in the quarter ended December over the preceding three months.
Seth said this will also have an adverse impact on the company’s margins. “The (rise in) commodity prices between the Q3 and Q4 will have an impact of at least 200 basis points on our margins over the previous quarter,” he said. One basis point is one-hundredth of a percentage point.
The company is working closely with vendors to pare imported content. Currently, imported content of Maruti vehicles as a percentage of total sales is 25%. Of this, 10% is made up of direct imports by Maruti and the remaining 15% through vendors.
In the next three years, Maruti plans to bring vendors’ share of imported content down to 5%. The full impact of localizing parts supplied by vendors on the company’s margins will kick in over the next two years. “This is the first year. Normally for the components we localize, the benefits are 20-25%,” he said.
Unveiling the Eeco, Maruti Suzuki managing director and chief executive officer Shinzo Nakanishi said the Eeco will help the company strengthen its position in the so-called C segment. Prices of rubber, aluminium and copper rose 15%, 13% and 23%, respectively, in the quarter ended December over the preceding three months
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