Probal Basak / Kolkata Apr 03, 2012, 00:44 IST
While automakers have gone ahead and increased prices to offset the hike in excise duties proposed in the budget, the auto component industry is in a bind over passing on the burden – especially in the aftermarket or replacement market – owing to intense competition from both unorganised players and imports.
“The increase in excise duty by two per cent on auto components has a two-way impact. Apart from the fact that the increase in excise duty adversely impacts vehicle prices, which will in turn adversely impact sales of vehicles and auto components, it is hugely affecting the aftermarket business of the auto parts industry,” Vinnie Mehta, executive director of Automotive Component Manufactures Association (Acma), said.
“In the aftermarket (service and repair) there is huge competition from the unorganised sector, which also suffers from counterfeiting. And the selling point in the counterfeit market is the price point. You are hugely under strain here. You cannot increase prices because of the competition from the unorganised sector and counterfeit products,” Mehta added.
This has compelled manufacturers to absorb this increase in costs, and pass on the hike only partially in certain segments.
This loss is likely to contribute to the industry’s depleting margins, because almost 25 per cent of auto component sales are in the aftermarket, which is more profitable for auto parts makers than the OEM (original equipment manufacturer) segment.
The industry also feels that any hike in product prices in the aftermarket will result in a loss of market share to counterfeiters.
“Close to 40 per cent of the after market is dominated by unorganised sector and counterfeit products. Any increase in prices will be favourable to counterfeiters,” Mehta said.
Moreover, according to Acma, “spurious imports from China” have made the position of organised local players weaker in the aftermarket. Between 2005 and 2010, the share of Chinese imports increased from five per cent to 11.5 per cent.
Auto parts maker Q H Talbros said any price hike would impact market sentiment in the aftermarket, which is dominated by high-volume products.
“In respect of supplies to OEMs, there is no direct impact, because the hike in excise duty is a pass-through item. But we are not able to pass on the burden in the repair market, especially in the low-technology, high-volume segment, which constitutes 70 per cent of the market,” said Munish Malhotra, chief general manager (sales and marketing) of QH Talbros.
He explained that all players are making such parts and there are many spurious products, and that organised players cannot afford to hike prices in all these segments because of the stiff competition. Talbros is involved in the manufacture of auto parts like gaskets, steering and rubber components.
(Source : http://www.business-standard.com/india/news/auto-parts-makers-inbind-over-passingexcise-hike/469825/)
“The increase in excise duty by two per cent on auto components has a two-way impact. Apart from the fact that the increase in excise duty adversely impacts vehicle prices, which will in turn adversely impact sales of vehicles and auto components, it is hugely affecting the aftermarket business of the auto parts industry,” Vinnie Mehta, executive director of Automotive Component Manufactures Association (Acma), said.
“In the aftermarket (service and repair) there is huge competition from the unorganised sector, which also suffers from counterfeiting. And the selling point in the counterfeit market is the price point. You are hugely under strain here. You cannot increase prices because of the competition from the unorganised sector and counterfeit products,” Mehta added.
This has compelled manufacturers to absorb this increase in costs, and pass on the hike only partially in certain segments.
This loss is likely to contribute to the industry’s depleting margins, because almost 25 per cent of auto component sales are in the aftermarket, which is more profitable for auto parts makers than the OEM (original equipment manufacturer) segment.
The industry also feels that any hike in product prices in the aftermarket will result in a loss of market share to counterfeiters.
“Close to 40 per cent of the after market is dominated by unorganised sector and counterfeit products. Any increase in prices will be favourable to counterfeiters,” Mehta said.
Moreover, according to Acma, “spurious imports from China” have made the position of organised local players weaker in the aftermarket. Between 2005 and 2010, the share of Chinese imports increased from five per cent to 11.5 per cent.
Auto parts maker Q H Talbros said any price hike would impact market sentiment in the aftermarket, which is dominated by high-volume products.
“In respect of supplies to OEMs, there is no direct impact, because the hike in excise duty is a pass-through item. But we are not able to pass on the burden in the repair market, especially in the low-technology, high-volume segment, which constitutes 70 per cent of the market,” said Munish Malhotra, chief general manager (sales and marketing) of QH Talbros.
He explained that all players are making such parts and there are many spurious products, and that organised players cannot afford to hike prices in all these segments because of the stiff competition. Talbros is involved in the manufacture of auto parts like gaskets, steering and rubber components.
(Source : http://www.business-standard.com/india/news/auto-parts-makers-inbind-over-passingexcise-hike/469825/)
