LAHORE - The four major local auto assemblers have decided to reduce the quality of steel, used in manufacturing, ranging from 8 to 13 percent in the context of surging steel prices in the international market and expected decline in profits, margin, it is learnt. The industry sources said that the international steel prices have surged during the ongoing fiscal year by about 13 percent over previous fiscal and the local auto sector, heavily dependent on international steel prices. In view of this situation, the gross margins went down sharply by 330bps to 6.3 percent amid increasing steel prices. They said that the negatively impacted industry's gross profits in the period, witnessed a massive decline of 39 percent estimated at Rs 1.7 billion. The industry sources said that the raw material, constituting above 80 percent of total cost of goods sold, and steel's heavy proportion, which was about 70 percent in terms of total value, in the overall raw material consumption made auto assemblers' gross profit margins highly vulnerable towards steel price fluctuations. They said that that if international steel prices continue to rise by the same pace and grow by 13 percenty by the end of year, a 364bps downfall in gross margins may be registered, assuming all other factors remain intact. They said that steel prices in US market have surged by 13 percent that in-turn has increased the cost of steel inputs in the manufacturing of CKD Kit, as steel contributes about 70 percent value wise in a complete CKD. During Jan-Mar 2008, net profits of auto assemblers stood at Rs. 744 million as compared to Rs 1.3 billion in Jan-Mar 2007, indicating a negative growth of a significant 40 percent. Net sales of industry stood at Rs 27.3b against Rs29.2 b during the same period last year, also showing a downward trend of 7pc. The decline in sales was a direct impact of tumbling volumetric sales, which dropped by 8 percent to stand at 47k units during Jan-Mar 2008. Data shows that amongst four major vehicle assemblers in Pakistan, all assemblers depicted negative growth during the first 9 months of fiscal 2008. The figures shows that the assemblers registered decline in net profits for auto assemblers as total earnings of the three selected companies stood at Rs 2.1b as compared to Rs2.3bn in first half of fiscal 2007 - implying negative growth of 7.3pc. In addition, gross margins went down 80bps from 8.3 percent to 7.5 percent amid increasing steel prices and 1.6 percent appreciation in yen from first quarter of fiscal 2007 to 2008. Figures for the local auto sales in April 2008 shows that auto sales for the first 10-months (Jul-Apr) of fiscal 2008 stood at 153,846 units, showing a decline of 5 percent as compared to 162,462 units sold in the same period of fiscal 2007.