India's largest carmaker Maruti is looking to cut production in September due to a shortage of semi-conductors. This may result in the extension of the waiting period of some of the products too. The auto manufacturer is also getting ready for a substantial price hike in the upcoming month and this will be the fourth one since January due to a sharp rise in commodity costs.
"Commodity prices have a huge impact on our material cost, which is 75 percent of the total cost of manufacturing. Since April 2020, steel has gone up from Rs 38,000/tonne to Rs 65,000/tonne. Copper prices have gone up by $5200 per tonne to $10,200 per tonne, Rhodium has gone up from Rs 18,000/gram to Rs 64,300/gram. As commodity prices remain very high we have decided to go in for another hike," said Shashank Srivastava, Senior Executive Director of Marketing and Sales, Maruti Suzuki, in an exclusive interview to CNBC-TV18.
The company which has increased prices by 3.5 percent since January, is working out the exact quantum of price increase for September. "I can confirm that price hike will be across models and substantial as well. We do not pass on the entire cost to customers, we pass on costs only partially as we have to be very conscious of demand as well," said Srivastava. Any rise in the cost of acquisition will impact demand negatively and vehicle costs have been going up because of regulatory measures as well, he said. The official said that Maruti Suzuki has been actively cutting fixed costs and sale promotion expenses to maintain cost efficiency.
According to industry estimates, Maruti Suzuki has reduced production by 37 percent compared to July and is likely to produce under 107,000 units in August and could scale back production to under 100,000 units in September. "We cannot comment on production numbers as the situation remains fluid. We informed the exchange about production cuts in August due to the semi-conductor shortage and this is likely to be the case in September as well. We are working out the production schedule for next month", he said. Srivastava added that the industrial production for August could be 245,000 units compared to the planned 305,000 units.
Ertiga, XL6, Wagon-R, and CNG variants have had a waiting period and the waiting period for these cars could go up further if there are production cuts in September. "The number of electronic components varies from product to product and model to model within our large portfolio and for the past few months we have been trying to adjust production to maintain high levels of production", said Srivastava.