Maruti Suzuki India is keeping an eye on the price movement of commodities which had touched an unprecedented high in the second quarter. This is an effort to fix its vehicle prices in the future as it has not fully passed on the impact to consumers. The country’s largest car maker is hoping for softening of commodity prices, which also move cycles, having sort of reached the peak.
Shashank Srivastava, Maruti Suzuki India Senior Executive Director, told PTI that material cost is an important cost in the overall cost structure of any original equipment manufacturer (OEM). “Normally, 70-75% of the total cost of an OEM is material cost. In the second quarter, our material cost to net sales ratio had gone up to a very high figure of 80.5%. This is unprecedented,” he said. “We have to carefully monitor the situation because we haven’t passed on even the past increases of commodity prices into our vehicle price hikes.”
Srivastava said the company has taken a price hike of about 1.9% at the beginning of September and is carefully watching the direction of the commodity price movement in the future. He highlighted that peak of commodity prices was in Q1 of the ongoing fiscal but the effect of it comes to the OEMs like Maruti Suzuki with a lag of one quarter.
“So the effect of that peak had come to us in the second quarter, the executive explained. “Starting from May 2020, almost all commodities that are related to automobile production have increased.” This means that commodity prices have been increasing dramatically in the past one year. Steel, which was Rs 38 per kg, went up about Rs 72 per kg, although it has come down a little bit. Copper, which was at USD 5,200 per tonnes, also went up to USD 10,400 per tonne. Besides, the prices of other precious metals like palladium, platinum and rhodium have also gone up by up to almost two-three times.