Car makers line up price hikes despite a slowing market

A severe slowdown in sales notwithstanding, select car makers are threatening a price hike from January 1, 2019, to offset multiple cost pressures since the past several months.

Increase in commodity and fuel prices, rupee depreciation, lower-than-expected sales during the festive period and a predicted boom in demand next year due to BS-VI, have prompted these companies to consider a price hike from next year.

While Toyota Kirloskar and BMW have guided for an increase of four percent from January 1, 2019, others are yet to follow suit. Like its peers, Toyota recorded poor demand during the festive days clocking a growth of just 1.6 percent in October. BMW has not disclosed its sales numbers for the same month.

As per the apex dealer’s lobby body, Federation of Automobile Dealers Association (FADA), retail sales of passenger vehicles recorded a fall of 14 percent during the six-week period starting September 21 making it one of the worst festive periods for the industry in recent times.

“There has been an impact in the cost primarily due to rupee depreciation. Toyota has been absorbing the additional costs all this while. However, due to the continued pressure, we have to pass on a part of it to customers. Toyota is considering a price increase of up to 4 percent across models with effect from Jan 1, 2019,” said a statement from the company.

Usually mass market car makers are not the first to hike prices especially during a slow offtake phase. Toyota and BMW are both premium brands with average ticket size much higher than companies like Maruti Suzuki and Hyundai.

Therefore, despite the cost pinch, car market leader Maruti Suzuki is avoiding an increase in price for fear of further hurting demand. Hike in insurance costs, tighter lending rates and fuel price hike had hurt retail demand during the last several weeks.

Speaking to analysts Ajay Seth, Chief Financial Officer, Maruti Suzuki said, “There is no thought at the moment on the

price increase. We have to examine how the market goes. We explained to you that at the moment the markets are flat. So, we will have to consider all those factors before any decision on this has to be taken."

Similarly, utility vehicle specialist Mahindra & Mahindra has put off ‘an across the board’ price increase for the time being but said it will review the demand situation before taking a call.

“Price hike will depend on market dynamics (like) demand and it will be decided on the situation at that time,” said Pawan Goenka, Managing Director, Mahindra & Mahindra speaking to analysts. M&M has promised to hike prices of the newly-launched Marazzo by Rs 30,000-40,000.

Luxury car market leader Mercedes-Benz has also signalled a hike in 2019 after having been forced to absorb most of the cost pressure during the preceding months.