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How much of a car is steel?
Partha Ghosh in New Delhi | December 08, 2003 10:04 IST
So what's the value of steel as a percentage of your car's price? Automakers say it should be 35-40 per cent, while Indian steel firms argue it is only 16 per cent.
If the latter are to be believed, the value of steel as a percentage of the final price of a small car will only be 7 per cent, while carmakers say it is nothing less than 15-16 per cent.
The Indian Steel Alliance recently made a presentation to steel users to quash the latter's claim that the steel manufacturers were deliberately keeping prices high and hampering the competitiveness of the auto industry.
The ISA produced internal data which the automakers say is grossly misleading. So much so that the Society of Indian Automobile Manufacturers (Siam) has written to its members saying they should immediately get back with their own data.
"We will take them head-on," a Siam executive said.
The debate comes at a time when carmakers are planning to increase prices by the end of this month.
The country's biggest carmaker Maruti will renegotiate steel prices this month and has indicated that it will increase the prices of its various models after December.
"So far, we have been able to roll-over prices only by virtue of being the largest buyer in the sector. But this time around, the steel producers are negotiating hard. It seems there is a cartel," a senior Maruti executive said.
Last week, General Motors made an announcement to increase prices by 2-3 per cent with effect from January 1 next year.
A Siam executive explained that the net impact on the cost of producing a small car, the Maruti 800 for example, as a result of the increase in steel prices in the last few months is around Rs 3,500. On bigger cars, this would be around Rs 7,000.
In a highly competitive market, carmakers are already working on low margins. A further cost escalation is unbearable, they say.
The tyre manufacturers are also talking about a 25-30 per cent price hike.
"When steel prices fell after 1997, there was no cut in prices by these user groups. This clearly shows steel can't be a major cost factor," said an ISA source
According to the ISA, the steel input in a small car is 850 kg on average. The estimated cost of raw materials is Rs 150,460 and the average market selling price is Rs 350,000.
The value of steel in the product is Rs 23,590, which is 16 per cent as a percentage of the cost of raw material and 7 per cent of the market price.
In a sports utility vehicle, the value of steel is Rs 29,225, which is 15 per cent of the cost of raw material and only 4 per cent of the market price.
Even consumer durable firms say that the steel manufacturers are providing misleading facts. According to the ISA, the value of steel as a percentage of the cost of raw material in a washing machine is only 3 per cent.
But it should be at least 7 per cent, according to SN Rai, head (commercial) of LG Electronics India Ltd.
"The price of steel as a percentage of the cost of a refrigerator has gone up by around 15-16 per cent year-on-year. As a result, the price of refrigerator has gone up by at least 7 per cent," he added.
A steely war of words