The Hindu Business Line : India may slip in auto component exports

Two main factors are responsible for the industry's plight. These are the unstable and growing prices of key inputs besides the appreciation of rupee vis-à-vis the dollar.

The rising cost of components has made global automobile manufacturers more wary about signing new contracts as well as renewing the existing ones for certain auto components from India. In other words, India may be losing its competitiveness in auto components to countries such as Mexico, Turkey, Brazil, Eastern European countries such as the Czech Republic which have recently joined the European Union and China. What has been the sore point with global original equipment (OE) manufacturers is not merely the increase in steel price but the continuous rise.

In a recent interview with Business Line, Mr Franco Fusignani, President (Europe, Asia, Africa) of CNH Global, the world's largest agriculture equipments company, said that India needs to maintain its cost competitiveness if the momentum in outsourcing is to be sustained in the long run. "India has lost a bit of competitiveness as far as certain components are concerned due to the rising costs," he observed.

According to Mr A.K. Taneja, Chairman (Raw Material Committee), Auto Component Manufacturers Association (ACMA), many countries such as Brazil and Mexico are vying for a piece of the auto components outsourcing cake.

"Meanwhile, most domestic exporters of auto components have asked for a price revision from OE manufacturers, but it has been denied in almost all cases. Most companies enter in to 1-2 year contracts," he said.

Further, as the contracts did not allow for raw material price increases to be passed, the new contracts being negotiated by domestic exporters has seen the introduction of two clauses. The first being that exporters will get a price revision on export of auto components if prices of key raw materials such as steel change by a fixed percentage. The new contracts also bring in the issue of rupee-dollar parity.

"The response has been lukewarm this time around to the new contracts we are trying to sign on", points out an official from a domestic component company.

Most affected may be components, which require pig iron and alloy steel. While prices of pig iron have nearly trebled in a matter of 14 months, prices of alloy steel (which is used to make components such as crankshafts, gears and axles) have increased by more than 40 per cent in the period.

And it is not only OEM exports that may suffer, but also exports to the aftermarket as frequent price increases spell loss of competitiveness.

"There is usually a lag effect of about six months to one year between the effect on exports and price increases. However, if the constant rise in input costs continues, exports may eventually suffer," Mr Taneja said.

India's export of auto components crossed the $ 1 billion mark in 2003-04.

More Stories on : Steel | Automobile Components

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
An Indian farmer bats for new technology

For goods not under MRP-based assessment — Budget may introduce excise levy at `first point of sale'

IHT issue: Govt to file caveats in High Courts

Govt to ensure stable tax regime: Kalam
Growth rate pegged at 7-8 pc; FII, FDI to be encouraged

Theme restaurants catching on in Chennai

Tata Steel plans 1:2 bonus issue

India may slip in auto component exports — Rising steel prices play spoilsport

Indian equity market still attractive on P/E ratio

Do not treat financial derivative transactions as speculative: ICAI

Mukesh discusses convergence with Jaipal Reddy