Prospective car buyers may have to contend with another price increase with the steady rise in the cost of steel, a critical raw material.
All car makers passed on the two per cent hike in excise duty to consumers soon after the Budget.
The steel cost increase has put the industry in a tizzy. Japanese steel mills, the benchmark for price negotiations, had settled coking coal contracts at $200 (Rs 9,100) a tonne compared with $129 (Rs 5,800) last year.
The forecast for iron ore is $100 (Rs 4,550) compared with about $62 (Rs 2,800) last year, which implies the cost of production is set to touch $560 (Rs 25,482) a tonne, $70 (Rs 3,185) less than the selling price in the domestic market for hot rolled coil, a key flat steel product.
The steel industry is no mood to absorb the cost with the revival in demand after a sluggish year. Ankit Miglani, director (commercial) Uttam Galva Steels, said prices could increase by $50 (Rs 2,275) next month and $100 over the quarter.
Car makers say it is only a matter of time before the rise in the price of steel is passed on to the consumers.
"Till now, the cost increase has been absorbed, but I don't think manufacturers will be able to sustain this in the long term. Since manufacturers have not increased prices (except due to the excise duty rise), they can only absorb it to a certain extent.
"Right now, they are at a threshold. So, even if steel prices rise by 10 per cent, there will be an increase in car prices," an official from General Motors says.
But, steel makers argue automobile manufacturers are just looking for an excuse to pass on the cost. A steel-based car contains less than a tonne of steel.
Auto manufacturers with domestic operations suggested, too, that the improvement in metal prices could be reflected in the cost of vehicles.
"There have been indications that a substantial rise could be expected in steel prices. As of now, we have not revised our prices but might have to, looking forward," an official from the Light Commercial Vehicle section of Tata Motors points out.
Although international majors remain tight-lipped about whether car prices would be revised, they are expecting input costs to escalate.
A spokesperson for Daimler AG, which produces cars and trucks under the brands of Mercedes-Benz and Maybach, among others, says, "Following the historical highs of 2008, the prices of many raw materials at first fell significantly in 2009.
"Assuming that the worst of the economic crisis is now over, we expect prices to rise again with the projected revival of the global economy and price fluctuations will also increase. This trend is already apparent in the prices of steel, precious metals and oil, for example."
