Price hikes may stall auto sales2 min read . Updated: 21 Dec 2020, 06:35 AM IST
- Automakers are looking to hike vehicle prices from next month
Plans by automobile companies to raise vehicle prices from January could upset the demand recovery set in motion after the coronavirus lockdown curbs were lifted, four automobile industry executives said.
Maruti Suzuki India Ltd, Hero MotoCorp Ltd, Honda Motor Co. and Mahindra and Mahindra Ltd (M&M) have announced that they would increase vehicle prices from January citing the need to offset rising commodity prices and other input costs.
Others such as Bajaj Auto Ltd and Royal Enfield have recently raised prices.
“While low discounts post-Diwali this year suggest a mix of lower inventory and sustained demand momentum in the market, price hikes can certainly deter customers from walking into the showrooms. That said, the market has been down for over two years, and this fiscal has been the toughest for the industry ever," one of the executives cited above said, requesting anonymity.
Passenger cars, commercial vehicles as well as two-wheelers have seen a sharp price hike of as much as 15% as the industry transitioned to the stricter Bharat Stage VI (BS VI) emission norms, which came into effect for all vehicle categories from 1 April 2020.
Automakers began rolling out BS VI-compliant vehicles last fiscal, and Maruti Suzuki was among the first to introduce BS VI-compliant versions of its high-selling models last year.
“While we say that a price hike would lead to lower demand, we must understand that input costs have gone up substantially. For example, the cost of making engine systems under BS VI regime has risen sharply as it now requires catalytic converters, which use much higher volumes of precious metals such as palladium and rhodium. Part of that price hike could not be passed on to the customers last year," said Shashank Srivastava, executive director in charge of marketing and sales at Maruti Suzuki.
According to Bloomberg, while metal prices are up 31% since 1 July, copper, lead, aluminium, zinc and crude prices have risen 32%, 16%, 28%, 40% and 24%, respectively, during the same period.
“Prices of raw materials involving metals, plastics and others are up enormously. Rhodium, for example, used to be at $2,000; it is now at $16,000. Since this year, the input costs are up sharply. The price hike has to happen. Higher costs cannot be held back. However, we have to maintain a balance between customer expectations and business prudence," said Srivastava, adding that he does not expect the planned price hikes to adversely affect demand.
Srivastava said Maruti Suzuki is still to decide on the quantum of the price increase.
“We are discussing it internally. The extent of planned price rise will vary across models," he said.
Meanwhile, Hero MotoCorp announced that it would raise its two-wheeler prices by up to ₹1,500 from 1 January.
M&M declined to comment. Tata Motors, Hero MotoCorp and Royal Enfield did not respond to queries until press time.
Most automakers would raise prices, given the competitive margins and market participants’ broadly synchronized price moves in the past, according to Fitch Ratings.
“The price increase will further lift the cost of owning vehicles in India, after price hikes of up to 15% from 1 April 2020 following the implementation of BS VI norms. This would dampen consumer sentiment in an already weak demand environment. We believe the impact will be more pronounced on commercial vehicles, which experienced higher price increases in percentage terms in April," the credit rating firm said.