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Priyanka Vyas

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New Delhi, June 29 Global automobile companies setting up their purchasing shops in the country for sourcing components have sounded a note of caution that the soaring commodity prices could erode India’s competitiveness.

The Fiat Group, which began its purchasing operations last month by announcing its plan to source €250 million worth of auto components from India in three years, estimates that the country was losing its edge.

“If commodity prices keep moving at the same rate, the cost advantage would be reduced to 11 per cent from the present 15 per cent. Raw material costs are eating into the manpower advantage that we get while sourcing components from the domestic market. Moreover, unlike countries like China which enjoy economies of scale, in India it is not the case,” said Mr Neeraj Hans, who heads the Italian auto maker Fiat’s purchasing operations in India.

Renault with plans to source auto parts worth €300 million (approximately Rs 1,890 crore) locally, said that it was considering ways to buy products with a higher engineering cost advantage as it continued to wrestle with the rising metal costs.

“In many of the components that we source, the raw material prices constitute almost 60 per cent of the total cost and the remaining is the labour cost and now there is an imbalance in this ratio. There is certainly lot of pressure and we are looking at how we could buy value-added products,” said a Renault official.

Auto companies world wide are sourcing a significant proportion of domestic engine, transmission parts, axle and chassis based components that use hot rolled and cold rolled steel as the core raw material.

The prices of Blooms, a type of steel used in casting machined parts, rose from Rs 27,000 a tonne in January to Rs 33,400 in May . In the same period, the cost of 1 mm of cold roll coil went up from Rs 39,600 to Rs 44,080. Prices of melting scrap also climbed to Rs 27,000 from Rs 20,000.

The auto component arm of the C K Birla Group Avtec said it was not just the commodity prices, but the logistics costs for supplying components to markets in the US and Europe wiping out their margins by 5 per cent.

“With the high fuel prices our logistics costs have also gone up. So when our costs are measured on the same scale with suppliers located in markets like North America, we find it difficult to compete,” said Mr Sudhir Rao, CEO, Avtec.

More Stories on : Automobile Components | Commodities

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