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Difficult times continue to chase auto makers. Indian part suppliers are now demanding they be waived from an annual contract  to lower prices by a certain fixed amount. Hectic parleys are still on, say many auto suppliers, as carmakers face their own set of financial woes and any reduction in costs is welcome in these tough times. The contracts between auto component makers and carmakers usually has a price reduction clause built-in and this is the first time in several years that there is an issue over such 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,” says Santosh Singhi, chief financial officer at Amtek Auto. Till January this year, export volumes had dipped 40%, but since then there has been a slight revival. Auto makers such as GM and Toyota, themselves hit by the financial crisis, are engaged in negotiations with auto component players to reduce prices but haven’t been able to make much headway. “Negotiations are on but this year price cuts are getting harder to come by,” says Karl Slym, managing director, GM India, whose US parent has filed for bankruptcy. “It’s true that negotiations are not yielding the desired discounts,” says Shekar Viswanathan, deputy managing director (operations) at Toyota Kirloskar Motors. The firms facing tough times are mostly those who import some parts. “The depreciating rupee was their main problem because of which they are not in a position to give discounts,” he said. Both Mr Slym and Mr Viswanathan say that they are not going to push for discounts at the cost of the suppliers’ survival. “We will work with them to see ways to tide over this crisis,” said Mr Slym.

Last year, raw material prices raised 40-50%. While many auto component manufacturers asked for a corresponding price increase from their buyers, hardly anyone got it. But when price of raw materials came down, buyers wanted immediate price cuts. “This year probably will not see as much of a reduction,” says Rakesh Batra, national leader, automotive sector at Ernst & Young. Typically, year-on-year price reduction by auto component companies is in the range of 2-5%. This is productivity and volume-based reduction, excluding changes in raw material pricing.

ET

Tata Motors will deliver the first batch of its affordable car, Nano, during the last week of July, officials close to the development said. Ratan Tata, chairman of the company, is expected to hand over the keys to the first Nano customer. The auto major has already begun dispatching the vehicles to dealers across the country after sending allotment letters to the first one-lakh customers.

Over 70% of the total 2.03 lakh bookings have come from non-metro markets. Tata Motors, which closed the bookings for the Nano on April 25, 2009, will complete the process of delivering one-lakh cars by the last quarter of 2010. A Tata Motors dealer based out of South Mumbai said, customers have been informed about the delivery schedule in their allotment letters.

Customers, who do not figure in the first one-lakh list, have been given the option of retaining the booking and will earn interest on their booking amount with effect from July 2009. According to Tata Motor spokesperson, as many as 55,021 customers have consciously agreed to accept the delivery of the cars after the first batch delivery.


Tata Motors had offered the one-lakh pricing for the Nano only to the first one-lakh customers. Among the three variants of the Nano car, the base version accounted for 20% of the bookings, followed by the CX variant at 30% and the remaining 50% for the top-end LX variant.

“The Tata Nano is unlikely to contribute significantly to Tata Motors’ revenues in 2009-10, as the initial volumes are low. However, as the booking amount is higher for the top-end variant, the margins will be better. A lot will depend on product performance and how fast the Sanand capacity comes up,” said an analyst from a Mumbai-based brokerage firm.


The company, which is currently manufacturing the Nano from its interim facility at Pantnagar, has a capacity to manufacture 50,000 cars a year, which it plans to raise to 2.5 lakh units once its new plant at Sanand in Gujarat starts in December.

The company sold a total of 6.10 lakh forms and garnered nearly Rs 2,500 crore on 2.03 lakh bookings. Although initial industry expectations were around five lakh bookings, company officials maintain that the company has garnered a good response at a time when the car market is struggling for volumes.

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German auto major BMW may once again look at the possibility of launching its Mini Hatchback in India by December 2009.

“The Mini would be imported and would carry a price tag of around Rs 20 lakh for the base model. We had shelved plans of launching the mini hatchback last year when the market started turning bad since we saw that the risks involved in launching it were more than the rewards we would be able to reap afterwards.

Towards the end of this year, we will once again weigh the pros and cons of launching the hatchback model in India,” said BMW India president Peter Kronschnabl after launching BMW X6 in Kolkata.

“The Rs 20-lakh price tag would be Rs 9-10 lakh higher than the highest priced car in the segment. We need to assess if there is a market for such cars. We also need to convince our dealers that additional investment they make would fetch returns if we have to launch the car in India,” he added.

“Nevertheless, the possibility of the vehicle being a success last year was bad, and the car market hasn’t improved much during this time. Although we will look at the possibility of launching the car during December 2009, the possibility of a market survey yielding positive results does not seem a bright possibility,” said a senior BMW official.

The company sold 1,747 cars during the first half of 2009 calendar, about a quarter of total luxury car sales of 7,400 in India. “BMW vehicle sales improved by about at 12% over the previous corresponding period which is 1.5% above the growth in the entire segment,” Mr Kronschnabl said.


This year, BMW is looking to sell 3,000 units of which 100 will be in Kolkata. In 2008, the company sold 75 cars in Calcutta. The company recently raised the annual capacity of its Indian plant to 3,000 units from 1,700 on a single-shift basis at a cost of $750,000.

ET