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      Local manufacturers flourish in view of increasing import costs

      CarTrade Editorial Team

      CarTrade Editorial Team

      In the wake of depreciating value of Indian Rupee, auto manufacturers are struggling against increasing import bill. This has compelled many car makers working in India to focus upon localisation of cars. Hence, the industry may soon see auto giants opt for parts from the domestic auto ancillary industry and commence initiatives with its partners to procure raw material from the local market only. Major names like Maruti Suzuki India, Honda Siel Cars India and Toyota Kirloskar Motor have already begun coordinating with vendors to reduce import volumes and acquire raw material for components from India only.

      Maruti Suzuki, the largest car maker of the country, is emphasising upon increasing its own as well as its vendors' focus of upon localisation. The company's objective is to raise the indigenisation levels from the existing 75 per cent to 90 per cent in a couple of years. Annually, the company incurs an import bill of Rs. 8,000 crores for components alone.

       

      Local Manufacturers
       

      According to a senior executive, “We import over 10 per cent of our components indirectly through our vendors. The appreciation of the yen or the depreciation of the rupee puts pressure on our margins.” He further adds, “So, now we are trying to work with our vendors and encouraging them to increase localisation levels of the products.”

      The automotive giant hopes that pure localisation will assist it in cutting production costs by 5 per cent, a considerable margin.

      As per analysts, this migration towards localisation is not surprising at all. Abdul Majeed, partner, PricewaterhouseCoopers (PwC), commented, “Eventually, auto companies would have to localise to reduce costs and improve profitability.” He further said, “The adverse foreign exchange movements have further catalysed the drive towards improving localisation levels.”

      Presently, auto manufacturers in India are suffering from low sales and an increase in import expenses is simply not affordable in the current scenario.

      In view of low sales figures, companies are wary of increasing prices of their models, though some, like Maruti Suzuki, have already done so. Meanwhile, most manufacturers are searching for ways to reduce costs. Toyota, which spoke of its woes through its Deputy Managing Director, is also pondering over revising car prices in 2012.

      This Japanese giant imports close to 50 per cent of its components from suppliers based in Japan and Thailand. Considering the rising import bill, the company has already commenced working on a new engine production facility with 1,00,000 annual installed capacity for Etios. Moreover, it is also looking to set up a transmission manufacturing plant, having annual capacity of 2,40,000 units, by 2013. When operations begin at these two units, the company will be able to localise 90 per cent of Etios and Etios Liva, thus bringing inflating costs under control.

      General Motors, which brings Captiva to India as a Completely Built Unit (CBU) and also imports some crucial parts to India, may hike prices. According to P. Balendran, Vice-President (Corporate Affairs), GM India, “We are currently evaluating the extent to which we are being impacted by the depreciation of the rupee. We will raise prices accordingly, probably before January next year.”

      Honda Siel, which insulated itself against uncertainty in currency rates via forward contracts, is one of the few who are not mulling a price hike right now. Jnaneswar Sen, Senior Vice-President (Sales and Marketing), quipped, “The yen has been stable lately, the dollar has appreciated sharply in the last three weeks. For the moment, we are covered.”