TC Malhotra contributes to MetalMiner from New Delhi.
The impact of rupee depreciation on Indian auto companies is so high that many car- and car-parts makers are adopting various strategies to control their import costs.
Upward trends in commodities prices have further burdened the auto firms and as a result, the pressure on margins has been high for auto and motor-parts makers. India’s rupee, over the last month, had reached its lowest ever point against the dollar at Rs 52.50 due to growing demand for the dollar. (Check back in later today for a post on undervalued currency and commodity volatility.)
While auto giants like Toyota and General Motors are considering a price hike to offset the rising import costs on components, some leading auto-parts suppliers are considering shifting some production to India to reduce their import bills.
Indian news agency PTI quoted GM India Vice-President P. Balendran as saying that they import lots of parts and the rupee depreciation is impacting them. They were planning to review prices in January, but due to the currency fluctuation, may have to do it sooner rather than later, Balendran was quoted as saying.
Toyota’s Kirloskar Motor (TKM) Deputy Managing Director Shekar Viswanathan was quoted as saying that rupee depreciation could result in the company posting a loss for this year. Sandeep Singh, DGM (Marketing) at TKM echoed that their company had been seriously affected by the exchange rate volatility. It was double jeopardy for the Indian operations of the company, as the yen was growing while the rupee was depreciating. This was greatly affecting their margins.
Toyota Kirloskar is a joint venture between Toyota Motor Corporation and Kirloskar Systems.
Meanwhile, component makers at the ongoing Auto Expo said the depreciation in the currency, which dropped 19 percent against the dollar in 2011, had increased costs and hurt their profits during the year.
Spending on imports of auto parts increased by 22.1 percent to Rs 105 billion ($210 million) in the six months to October, commerce ministry data shows.
Carmakers face fewer difficulties because they typically have larger turnovers and are more likely to be hedged against currency fluctuations. High interest rates and slowing demand have also hit smaller component makers before vehicle manufacturers.
Onshoring – and Go!
Some carmakers are discovering that sourcing locally provides respite in troubled times.
According to a report published in Business Line, auto companies have drawn up aggressive plans to step up localization. Diesel engines for the Nissan Micra are currently being imported from Europe, but the company plans to manufacture this locally by setting up a diesel engine plant next to its current plant in Oragadam, Chennai. The diesel variant of the Sunny is expected to benefit from this move.
The Business Line report says that Toyota has also announced an engine-and-gearbox plant in India. Valeo, a French components manufacturer, is expanding its friction material factory at Maraimalainagar, Chennai. It is also setting up a new factory at Oragadam for clutches.
In addition, Valeo is looking to locally manufacture wiper systems, top column modules, compressors and air management systems.