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Cars to cost more as raw material prices soar

Cars are likely to cost more with rising raw material prices

Apnaloan.com Research Bureau

09 Apr 2008

Passenger cars are set to become costlier with car manufacturers mulling to hike prices by 2-3 per cent anytime in April. This is to counter the impact of rising costs of inputs which has hit the bottomline of all auto Companies.

If the hike is implemented, it would be in the range of Rs. 5,000- 35,000 depending on the model. According to industry estimates, prices of steel have gone up by 27 per cent between January and April 2008.

As reported by Financial Express, Arvind Jain, investment officer, BanyanTree Finance said, "A price hike of 2 - 2.5 per cent is inevitable as the bottomline of major manufacturers is expected to be affected by around 3 per cent for the year ending March 31. However, the process may be in phases as Companies are set to renew their long-term contracts with effect from April 1 for steel and other raw material that go into making a vehicle."

The impact on the bottomline could have been worse, anything around 8 per cent, had it not been for reduction in excise duty and huge investment on research and development (R&D) by major auto manufacturers to lower input costs, added Jain.

Firms like Maruti Suzuki India Ltd and Tata Motors have been investing huge amount in R&D to bring down the overall cost by 1-1.5 per cent as it would help neutralise the impact of rising prices to a small extent.

While Tata Motors has already hiked the prices of its commercial vehicles and Mahindra Renault has raised the price of its mid-size car, Logan.