The rupee touching a new low of 55 to the US dollar is likely to hit the Indian automobile sector hard.
Bogged down by the price escalation of import content, which ranges up to 30%, General Motors has said the company will revise car prices. Others are also likelly to follow suit.
“From commodities to finished goods, everything gets costlier,” said P Balendran, vice-president, General Motors India. “We will revise prices soon.”
With rupee falling 7.5% against dollar in this quarter so far, it is not just direct import of select auto parts that is going to get expensive, but prices of high grade steel that is used in automobiles will also rise.
The domestic steel producers will demand import parity price, triggering an all-around raw material cost escalation, as 65-70% of auto parts are made of steel.
“A major share of high grade automotive steel is being imported,” said Kaushik Chatterjee, chief financial officer, Tata Steel. “Rupee depreciation will make it costlier for the domestic players.”
Tata Steel annually supplies 1.5 million tonnes of steel to domestic auto industry and commands 42% market share.
“The challenge is that domestic price of steel is also linked to imports,” said Vishnu Mathur, director general, Society of Indian Automobile Manufacturers. “Domestic steel producers will demand import price parity.”
The car companies worry that price hike will hurt the sales which are already moving at a sluggish rate.