Component Makers Brave Market Forces

Car component manufacturers are facing in catch-22 situation. On one hand there is an increase in raw materials and on the other hand they are unable to pass it on to car manufacturers. Hence, they are forced to face the burden of rising inputs costs on their own.

The declining rate of car sales in India is also affecting the car components manufacturers. According to an analysis conducted by Automotive Component Manufacturers Association of India (ACMA), the top 50 companies in component manufacturing have been consistently showing declining profits. The study stated that the combined net profit of these companies showed a decline of 130 points. However, the net results posted by the companies showed marginally better results due to large profit recorded by bigger companies.
The decline in profit has been due to rise in raw such as steel and aluminum, while an appreciating rupee is weakening export earnings. The price of Steel has increased by 25 percent in just the last three months period. Aluminum prices have also gone up by 23 percent in the same period in the international market.
But the car manufacturers are unwilling to take on the burden of costlier components, which will in turn increase the cost of cars.
An OEM car part manufacturer Mr Rahul Kejriwal of Remson Industries said “The component manufacturers are trying to work it out with the car manufacturers. I believe that the profit margins will remain affected for this fiscal year, at least. The key materials have seen a rise on costs”
Remson Industries is a leading facility in manufacturing control cables and gear shift systems.
Mr Ashok K Taneja, president and Chief Executive Officer of Shriram Pistons and Rings limited said “The OEM’s are under pressure to increase the costs, but it is unlikely to happen soon, as the issue of price hike will be resolved only through several rounds of negotiations.”
While car manufacturers agree that there has been a steep hike in steel and aluminium prices in the past three months, they are unable to take on the burden. They argue that a lot more steel and aluminium goes in construction of the car body than components. Hence, they are already burdened with increasing steel prices.
The CEO(Chief executive officer of Mahindra-Renault Private Limited said “The impact of price rise is larger on the construction of body parts. We have not given in to demands by component vendors and are trying to retain the prices that prevailed during the time of contracts.”
To add to their woes the depreciation of dollar at international market, has affected their export earnings also.
The components manufacturers suggested an increase in car prices, that is pass on the increase to final consumers. However, this will be seen as a negative move, as new car sales rate is already declining. The industry experts say that the hike in market rates cannot be delayed for a long time. So all those car buyers who have wanted to go for cars when they are cheap this is the time.