Major Automakers facing dilemma of hiking Car prices

Major automakers including Maruti Suzuki and Hero Honda are getting bruised with the present auto-making scenario. The input prices, especially that of raw-materials have risen considerably in the past few months which forces them to increase the car prices, but the on going competitive market scenario holds them back on the thought of raising vehicle prices. Basic raw-materials including Steel that has seen an increase of about 25% price rise this year, Aluminium prices risen by 20%, natural rubber by 150%, the overall production cost of cars has shot up tremendously. Hero Honda CFO said that there is tremendous pressure of the price hike of commodity prices due to quick recovery of India and China.

With the elevated input prices the normal reaction of automakers is to increase the base prices, but due to the competitive scenario right now this measure has to be prevented. Also, it was quite recent in January and April 2010 that the automobile prices were hiked by 3%. With all the current situations hovering on automakers ears, it seems that they have succumbed to taking a hit on operating margins or gambling on flailing sales as the immediate consequence of the hike.

As the automakers are taking the price hike on themselves, the Auto-parts makers are keen on passing the raw-material price hike onto the automakers making the effect more intense on them. Tyre manufacturers are the first to hike prices. Apollo Tyres is going to hike prices by 4-5 % in June, said Apollo Tyres VC&MD Neeraj Kanwar.

In the midst of all-input price hike, automakers are leaving no stone unturned to cut down on the production costs by running various cost-cutting measures. One such approach being followed is the localization at Vendor's end that would give them considerable savings. Fluctuating input costs and other price hikes in the production costs is leaving auto-makers deal with the main issue of volatility.

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