Namrata Kath Hazarika | 25 Jun, 2008
With increase in input costs and rising steel prices, India's auto component industry stands to lose its price advantage to nations like China providing low-cost auto components.

The auto component industry is aghast again with the government's decision taken on June 14, wherein in a bid to discourage the growth of fuel guzzling vehicles, an additional heavy excise duty was imposed to slow down the big cars run on the roads.

"At this point in time we are not going to increase the price of our vehicles, but planning for some alternative measures," says Abhay Dange, General Manager, Press and Corporate Affairs, BMW at New Delhi.

The government has taken the decision to cut down the consumption of fuel as there is sparsity of oil supply.

With Rs 15,000-20,000 duty imposed on large cars, MUVs (multi-utility vehicles) and SUVs (sports utility vehicles), the auto component companies are wary about their business at present.

The increase in the price of raw materials have affected the growth of our business. Big auto giants are importing auto component products from alternative market beside India as there has been a steep rise in the iron ore, copper and mica, says Ravinder Kr Jain, Managing Director of Ambay Auto Electric Industries.

"In fact, this makes us less competitive in the potential market. The price of steel has hiked a lot which has made the auto component companies less competent as well. A steep rise of 5 to 15 percent has made us worrisome for our export business. This will increase the cost of production undoubtedly," he added.

"We are not looking for alternative market where we can sell our products but yearn the government should take step to roll back the price of raw materials," he added.

According to Rajiv Mitra, high official with Hyundai Motors India Ltd. told SME Times: "One of the ways of making components cheaper is to produce them locally and this is exactly what Hyundai is doing".

"We have brought our Koreans vendors from Korea and they along with Indian partners have set up shop here", he added.

In this context, Mitra opined that there are a number of local Indian vendors who are producing components for Hyundai. This way we are able to control both the price and the quality and also localize highly. A case in example is the recently launched i10 which enjoys a very high 90% localization."

When asked Ravinder about this, he said, "It is true that big auto companies are looking forward to foreign auto companies for their manufacturing purposes."

"Big auto giant finds foreign auto components to be much cheaper than India."

"China is the major player in this field and a major exporter of auto components. In fact, they are given enough facility by the Chinese government whereas the Indian government is steeping high the price, which is making us to keep a limited profit margin," Ravinder said.

"Chinese auto component suppliers and manufacturers have a cost advantage of 12 percent
as compared to the Indian manufacturers. Another reason is that the cost price of steel is about 20 percent cheaper than India," he added.

"In fact, we have to look for borrowing money from banks to fulfill our needs, but still we are not able to overcome the loss that will be incurred," says Anil Datta, Proprietor A.K. Auto Industries.

"The agent we are selling our products are blackmailing us. Like within an hour there is a change in prices, the product that was Rs. 10, within an hour the price rises to Rs. 20. When we ask what is the reason they will say that the cost of product has increased as there is a rise in the market value," Datta added.

"I do not know how would I cope up with such kind of major problem. In fact, borrowing loan from the banks is not giving any relief to my pain", he added.