Maruti Suzuki India (MSI), the country’s largest automaker has decided to hike the prices of its cars from the first week of next month due to the rising cost of inputs such as steel, which has marginalized the company’s profit margins.

Maruti dealers have already been written to by MSIs’ sales department asking them to be prepared for the price hike from the first week of May onwards. The letter stated that input costs had increased substantially as a result of continuous increase in the price of steel and commodity prices in the last few months. “We have been trying to absorb this increase in the input costs, but now we are forced to pass on a part of this increase to our customers, ” further stated the company’s letter to the dealers.

The quantum of the proposed hike in the prices of its various models is till being finalized by the company, although the increase is likely to be substantial. This will therefore increase the ex-showroom prices by the first week of next month, the letter added.

According to industry experts, the increase in price could be around the 3% mark as a result of the stiff competition in the auto industry. This would mean an increase of around Rupees 6000 for entry level cars such as the Maruti 800, and around Rupees 15000 for the Swift. It is worth mentioning that in February 2008 Maruti had hiked the prices of its cars by Rupees 1000 to Rupees 11000 (ex-showroom, Delhi).

However, in March, the company reduced the prices of its six models following the excise duty reduction in small car from 16% to 12% in budget 2008-2009. Those cars, which had qualified for the lower excise benefit, namely the 800, Omni, Zen, Wagon R, Swift and Alto had seen a reduction in its prices in the range of Rupees 6500 to Rupees 18030.

Carmakers have also been receiving intense pressure from the vendors for an increase in the prices of the car parts that they supply. This is only possible if the increase is passed onto the consumers. Apart from metals such as steel and cast, the prices of plastics used in various components have also gone up. While the price of steel has shot up by 8-12%, there has been an increase of 18% in aluminum cost. Price of copper too has gone up to a record high Rupees 355600 a ton, this works out to a staggering increase of 31%.

Hyundai Motors meanwhile seems to have adopted a wait and watch policy. A company official said that his company hasn’t been affected as they have a long-term contract for the supply. He further added that they do not have any immediate plan of hiking car prices. While most carmakers enter into a long-term agreement with steel companies, they cannot escape a relentless increase in steel prices for months on end.

Maruti Suzuki’s sales figure for the month of March 2008 were disappointing as it saw a 0.2% fall in its domestic car sales inspite of the 4% cut in excise duty. The B segment, which includes cars like the Alto saw an 11% fall in its sales during the year. Car sales, which had also slowed down in February, were expected to pick-up in March after the announcement of the excise duty reduction, but it did not seem to have materialized