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As auto demand rises, discounts make way for price hikes

Bajaj Auto and TVS Motor company have raised prices while Maruti Suzuki has reduced discounts

July 30, 2020 / 10:48 AM IST
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Bajaj Auto, TVS increase prices over the last couple of months. Maruti Suzuki reduces discounts in July, compared to the June quarter. The automotive industry had recorded zero sales in April after the nationwide lockdown announced in March.

Two of India’s biggest two-wheeler companies Bajaj Auto and TVS Motor Company , which control nearly 30 percent of the country’s motorcycle and scooter market, have raised prices over the last couple of months.

Maruti Suzuki, India’s largest carmaker, has already reduced discounts in July, compared to the June quarter.

Retail demand for two-wheelers, cars and SUVs has come back strongly so far in July, with many manufacturers claiming that sales have nearly reached pre-COVID-19 levels. The automotive industry recorded zero sales in April following the nationwide lockdown announced in March.

A price increase during what is assumed to be ‘stressed market conditions’ is the last resort for any company as there is always the risk of demand falling.

Talking to analysts, K N Radhakrishnan, director and chief executive officer, TVS Motor Company, said on Wednesday: “Retail  demand has been much higher than whatever we were able to produce and supply to the market. The inventory is much lower than the usual 35 days’ stock. We increased prices in Q1 by 0.7 percent and by 0.4 percent in Q2.”

TVS, India’s fourth-largest two-wheeler manufacturer, is yet to see full-fledged operations from its dealers. In July, only 85 percent dealerships were open. This went down to 75 percent in recent days, following lockdown measures by local administrations.

“In those areas where dealerships are open, demand is almost similar to last year’s,” added Radhakrishnan.

Bajaj Auto, India’s third-largest two-wheeler player, increased prices in July. The company hopes this would improve gross margins on motorcycles going forward, considering that no substantial raw material cost increase is predicted.

Soumen Ray, chief financial officer and president – finance, Bajaj Auto, said in a recent conference call: “There has been multiple rounds (of price hike) in various parts of the portfolio in various rounds. The last one we undertook was on July 7, which was only for 3 or 4 models”.

Bajaj Auto claimed that the first 10 days of July 2020 saw demand reaching 90-95 percent levels of July 2019. It subsequently came down to 80-85 percent, like TVS, after further lockdowns were announced at local levels.

Maruti Suzuki, India’s largest carmaker, has already reduced discounts in July compared to the June quarter. Senior company officials said that during the April-June quarter, the company doled out an average discount of Rs 25,000 per vehicle at the wholesale level, but at the retail level, the discounts were below Rs 20,000 per vehicle.

The current trend of discounting by Maruti Suzuki is much lower than the record average discounts of Rs 33,000 per vehicle, the highest in its 37-year history, doled out during the December quarter.

Demand for Maruti Suzuki cars climbed to 90 percent of pre-COVID-19 levels in July, forcing the company to ask its parent company Suzuki Motor Corporation to start an additional shift that will push up production by 22 percent.

“July discounts are lower than Q1 and it is expected to stay like this”, said Shashank Srivastava, director (sales and marketing), Maruti Suzuki, in an analyst call.

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Swaraj Baggonkar
Swaraj Baggonkar
first published: Jul 30, 2020 09:52 am