Carmakers' margin takes a hit as raw material prices go up

Carsmakers have to fight off more pressure on their margins with the increase in the price of raw material like platinum and palladium. Car companies use the two metals in catalytic converters which reduce harmful emissions from automobiles. The prices of steel had already been a cause of worry and this recent increase in prices of platinum and palladium has hit the manufacturers hard. Palladium rose by 35% and is getting to $590 an ounce, its highest of March 2008. Platinum tumbled to $700 per ounce on October 24, 2008 and has crossed the $1700 per ounce mark. There are indications that the prices may shoot further with automobile sales in India and China surging ahead.

Since India has moved on to stricter emission standards the rising prices of these metals is sure to hit companies like Maruti Suzuki, General Motors India, Toyota Kirloskar Motors, Mahindra & Mahindra and other auto companies. Car makers in the country had increased the prices of their cars after the budget and after the application of new emission norms. If this upsurge in raw material prices continues then it is possible that the car makers might have to up their prices once again. I V Rao, managing executive officer (R&D), Maruti Suzuki, spoke a leading business daily, “Catalytic converters will play a crucial role as India moves towards stricter emission norms. We are aware that palladium and platinum prices are slowly inching upwards. We had factored in the rising prices of catalytic converters, which we largely source from Johnson Mathey, while increasing our car prices on April 1, 2010. If our suppliers increase prices of catalytic converters due to a rise in the prices of precious metals, we may have to revisit our prices as well. But as of now, we do not have plans to increase our car prices.”

The increase in the prices of these metals has been calculated as 35% in one year. According to P Balendran, VP, General Motors India. “Going ahead, if these prices impact our cost of production, then we have to give a relook to our pricing.”

Even Toyota Motors spokesperson hinted that palladium and platinum were included as input costs in the price rise after Euro IV norms were implemented. However, there are no immediate plans to increase prices Toyota cars.

According to a Mahindra & Mahindra spokesperson, “There are some possibilities to try and keep working on engine combustion and common rail calibration where you can try and reduce the amount of platinum or palladium in the oxy-cat in order to slightly compensate the increased raw material cost.”

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