Pressure is mounting on Tata Motors' ability to hold the price tag of Rs 1 lakh for the Nano with leading auto-component suppliers saying they have approached the company for a price increase.
With steel prices soaring, the company recently set up a special team to look at ways and means to control the car's manufacturing costs.
Now Delhi-based Sona Koyo, which is supplying steering systems for the Nano, and Minda Group, which supplies electrical switches, have confirmed that they and other component suppliers have suggested a price rise to Tata Motors.
"All component suppliers to the Nano are reassessing the price hike and our message will be conveyed to Tata Motors," said Surinder Kapoor, chairman and managing director of the Sona Group.
"We have not heard anything from Tata Motors yet," he added.
Kapoor pointed out that costs have risen substantially since December and the recent cut in steel product prices has brought little relief. "There is hardly any leeway," he said.
A Tata Motors spokesperson, however, declined to comment. "Like any other company, the terms between Tata Motors and its suppliers are confidential," the spokesperson said.
Steel accounts for 15 to 20 per cent of the cost of an entry-level car (about 500 kg of steel is used). Government intervention saw prices of hot- and cold-rolled coils, which are used to make the outer body of the car, being lowered last week by Rs 500 to Rs 750 a ton.
Prices of alloy steel, which accounts for over 60 per cent of the total steel used in a car, have not been cut. Carbon steel, a type of alloy steel, has seen prices rise 22 per cent to Rs 43,150 a ton on April 1, 2008, from Rs 33,550 a ton on October 1, 2007.
Most component manufacturers believe that since the car is yet to go into production -- the schedule is Diwali -- they are optimistic that Tata Motors will reconsider component prices.
"We are holding discussions with Tata Motors. They have not agreed to our hike in prices but we are optimistic that prices should be revisited once production of the car starts. The hike so far has been unbearable," said N K Minda, chairman, Minda Group.
Vishnu Mathur, executive director, Component Manufacturers Association (ACMA), said, "The price cuts by steel players have been largely irrelevant for the auto industry."
"The price rise by the steel industry over the past few months has been much higher than the recent cuts," added an industry expert.
Disappointed by the government's lack of initiative towards the automotive industry, ACMA will send the government a petition in the next couple of days seeking a duty cut on alloy steel.
