Raw material cost increases are forcing automakers to go for yet another price hike in an effort to avoid a further squeeze on profit margins.
The hikes, which would be effective from April 1, would be for the second time in four months.
Maruti Suzuki, Hero MotoCorp, the leader in the passenger vehicle and two-wheeler segments, respectively, is among the companies, which will be increasing prices from next month. Renault, Nissan, Toyota and Ford, too, will follow suit beginning April.
Almost every company had hiked product prices in January in the 1-3 percent range. It is unusual for auto companies to raise prices at such short intervals.
Price escalations muted in 2019
In 2018, the industry had hiked prices in January, following it with another rise in August. Due to the demand slowdown, price escalations remained muted in 2019.
Price rises by a few usually have a domino effect on the automotive industry with almost every company following the pattern. Hyundai, Honda, Tata Motors, Mahindra & Mahindra, Kia, Volkswagen and MG Motor are yet to take a decision on increasing prices.
Hero MotoCorp said it will raise product prices by up to Rs 2,500 while Ford prices will go up by 3 percent.
Market leader Maruti Suzuki, Nissan, Renault and Toyota have not made public the exact quantum of the hike, but it is expected to be in the range of Rs 4,000 to Rs 16,000 based on past trends of 2-3 percent hike, depending on models and variants.
After raising prices by 2-4 percent since November, Pune-based Bajaj Auto had indicated that if raw material prices continue to head north, the company will be forced to hike prices again.
Repeat orders
The latest increase might not deflate the demand surge, say market watchers.
“Companies are operating their plants at full capacity and dealers are placing repeat orders. We are forced to operate in ‘made to order’ condition. A jump of 1-2 percent in prices translates to Rs 4,000 to Rs 16,000, which gets easily absorbed by the juicy auto loan rates”, said an executive of a Delhi-based carmaker.
After recording a sequential rise of 19 percent in the December quarter (Q3), domestic steel prices have jumped by another 19 percent quarter-on-quarter (QoQ) in the on-going quarter. Aluminum prices have increased by 11 percent (QoQ) in Q3FY21 and further 7 percent (QoQ) in Q4, according to JM Financial Institutional Securities.
The price pressure can be felt across the chain with auto component manufacturers also feeling the heat. Mumbai-based tyre maker Ceat had increased prices by around 3 percent in December and another 3 percent hike was to be passed on to the consumers in the March quarter.
Demand impact
Following the increases in January there was no impact on retail and wholesale demand. Passenger vehicle (cars+SUV+vans) February wholesales grew by nearly 18 percent while two-wheeler wholesales during the same month went up by 10 percent, according to data shared by the Society of Indian Automobile Manufacturers (SIAM).
Retail sales comprising vehicle registration data from all states, except four, of passenger vehicle (PVs) were up by nearly 11 percent while two-wheeler retail sales were down 16 percent during February, according to data shared by the Federation of Automobile Dealers Association (FADA).
Predicts Hetal Gandhi, Director, and CRISIL Research, “The ongoing rebound in economic activity will drive a strong recovery for original equipment manufacturers (OEM) next fiscal. The demand for personal vehicles (passenger cars and two-wheelers) will be driven by improving urban consumer sentiment, resilient rural incomes, modest vehicle price increases and attractive financing options.”
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