MAHMF Mahindra and Mahindra Ltd (PK)

Toyota Kirloskar Motor Private Limited, a joint venture between Toyota Motor Corp. (TM) and Kirloskar group in India, recently announced its intention of increasing the prices for most of their car models by 1.5% to 2%, effective 1st October, 2011. This will be Toyota Kirloskar’s third price rise this year.

The main reason behind the price hike is higher input costs, which according to the concerned company is very hard to control in the prevailing market condition. Moreover, the significant appreciation of the yen is also a major issue for the company. 

Toyota Kirloskar imports almost 30% to 70% of its components depending on the models. The company imports Camry, Prado, Land Cruiser and Prius models as completely built units. On the other hand, more than one-fourth of the content in models like Etios Sedan and Liva are imported from Japan. However, the company is planning to increase its local content production and reduce its import dependency, which in turn will minimize the negative impacts from currency fluctuation.

The automakers have found huge opportunities in the Asian countries mainly India and China. These two countries together are expected to account for 40% of growth in the auto industry over the next five to seven years. According to Global Insight – a U.S. based provider of economic and financial information – 14.7% of growth is expected to come from India while China is expected to contribute 8.3% by 2013 (compared with 2008 levels) based on their rapidly growing economy.

The main reason behind the development is the low cost nature of these regions. The automakers thus have shifted major portions of their production facilities from high-cost regions such as North America and the European Union to lower-cost regions such as China, India and South America. Despite such shifts the companies still have to import many components from their parent companies located in other countries. This has, in turn, raised costs.

Even General Motors (GM) in India has announced plans of implementing a price rise by next month. Tata Motors Limited (TTM) and Mahindra & Mahindra Ltd are also expected to follow suit.

 
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