No headway in reducing auto parts prices

August 13, 2009 11:40 am

Indian auto part suppliers are demanding they be waived from an annual contract to lower prices by a certain fixed amount. As carmakers face financial woes, any reduction in costs is welcome. 
 
The contracts between auto component makers and carmakers usually have a price reduction clause built-in, but this is the first time in several years that an issue has been made over price cuts. “There is not much scope to reduce prices at the moment, unless steel prices go down. This is a fixed cost intensive industry and with volumes going down, our costs are higher,” said Santosh Singhi, Chief Financial Officer at Amtek Auto. 
 
Auto makers such as GM and Toyota, who have been hit by the crisis, are in negotiations with auto component players to reduce prices, but haven’t made any headway. “It’s true that negotiations are not yielding desired discounts,” said Shekar Viswanathan, Deputy Managing Director (operations) at Toyota Kirloskar Motors. The firms facing tough times are mostly those who import some parts. 
 
Last year, raw material prices raised 40-50 per cent. While many auto component manufacturers asked for a corresponding price increase from their buyers, hardly anyone got it. But when prices of raw materials came down, buyers wanted immediate price cuts. 
 
Typically, year-on-year price reduction by auto component companies is in the range of 2-5 per cent. This is productivity and volume-based reduction, excluding changes in raw material pricing.