Depreciation of rupee results in increase in component costs of auto companies

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Monday, September 02, 2013: The weakening of rupee against dollar will pose a tough time for automobile companies in the coming future as cost of imported electronic components is going to surge by 15-20 per cent in coming few months. More than 25 per cent of the average cost of automobiles is due to electronic components, the prices of which are supposed to increase by more than 50 per cent in the coming three years, explained Subu D. Subramanian, managing director and CEO, Defiance Technologies, part of the Hinduja group, the Business Line reported.

The automobile company is already hard pressed and now increase in the prices of imported electronic components will adversely affect the domestic companies. Multinationals may contemplate an increase in the price of vehicles because their import content is huge.

The indigenous strategy followed by Hyundai has led to reduction in its imports, restricting to items like special grade steel, diesel engines, high-end petrol engines, auto transmissions, and other important electronic and electrical items. This path may be followed by local auto companies as well. But, situation has to be carefully analyzed before coming to any conclusion.

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However, these may benefit from exports as decrease in the value of rupee may increase their margins. But, the volume of exports by multinational companies as well as domestic auto companies is not huge. Multinational companies may be enticed to move their assembling, manufacturing, R&D and design activities to India for the simple reason of cost advantage.

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