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Maruti Suzuki India ltd – country’s largest car maker – is not expecting commodity prices to soften substantially in the coming months and its management, as a result, has opted for a price hike for the fourth time in this calendar year to improve profitability. The company though could not pass on the entire increase in commodity prices due to uncertainty in demand after the second wave of Covid-19.  

According to Shashank Srivastava, senior executive director, marketing and sales, Maruti Suzuki, price of steel has shot up to 67000 per tonne compared to 38000 in April 2020. Price of precious metals like Rhodium has also shot up to $16000 per ounce compared to just $1700 per ounce. Other metals like palladium and coppers have also followed the same trend. 

“Commodity costs have been increasing since 2020 but ever since the second wave of covid there has been a big question mark on the demand situation. As a result, we could not take a decision on raising our prices in line with the commodity prices. Imports of precious metals are very high; it is a catalyser for BS 6 vehicles," said Srivastava.  

He further added that the management waited for the commodity prices to reduce since it has to balance both the cost and demand side but no substantial drop forced the company to go for another round of price hikes. 

The auto industry came under pressure from the first week of April when Maharashtra imposed a strict lockdown. Delhi, Haryana, Karnataka, Tamil Nadu, and others followed suit. Maruti Suzuki, Hero MotoCorp Ltd, Hyundai and others either stopped production or reduced output significantly. Some manufacturers such as Bajaj Auto Ltd, however, continued to operate with limited capacity to meet export orders.  

With a steady drop in infections, especially in North and South India, most automakers have resumed operations since the middle of May.  

Increased pressure of commodity prices has financials of impacted automakers across categories in FY 21. This coupled with disruption in a production caused by acute shortage of semi-conductors will further impact the profitability of vehicle manufacturers.  

High fuel prices and a threat of second wave could also dampen demand during the upcoming festival period.   

“Increase in fuel prices does have a negative impact on consumer sentiment for car demand. Irrespective of the last couple of reductions, fuel prices are at a high level. We have the CNG option and the running cost is really low. So unlike petrol and diesel where running cost is 4.50 per kilometre, the same for SNG is 1.60 paise," said Srivastava.  

Maruti plans to sell around 3 lakh units of CNG driven cars in FY 22 as customers are likely to consider a shift from petrol and diesel vehicles due to increase in operating cost and improved network of CNG refuelling stations.

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