| Excise duty relief may wither away on input cost pressure.
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| Spiralling raw material prices are forcing car makers to contemplate a price hike as soon as June or July. While no one is ready to go on record on the quantum of the increase, top executives from the auto industry said the hike could be around 3-5 per cent.
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| Most of the car manufacturers had already slashed prices (on small cars) in the beginning of March following the Budget announcement of a cut in excise duty from 16 per cent to 12 per cent.
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| Since December, the industry has seen a sharp rise in key input costs of steel, alloys, crude oil, copper, aluminium, among others.
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| Experts say the rise is most likely to dent the operating margin of auto makers in the current quarter.
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| For example, prices of alloy steel have gone up by 8-12 per cent (nearly Rs 7,000 a tonne), while aluminium has become costlier by 18 per cent to $2,842 a tonne (Rs 113,680). Copper too has gone up to a record high of $8,890 a tonne (Rs 355,600), an increase of 31 per cent.
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According to experts, a 10 per cent increase in the steel price may result in around 2 per cent rise in the overall cost of a small car.
| BUMPY RIDE |
| Company |
Price cut due to excise duty cut (in Rs) |
| Maruti Suzuki |
6,500-18,030 |
| Hyundai |
8,730-13,278 |
| Tata Motors |
8,500-15,300 |
| Skoda |
18,000 |
| Ford |
22,000 |
| General Motors |
7,500-14,000 |
| Fiat |
12,000 |
| A 5% increase would mean* (in Rs) |
| Maruti Suzuki |
10,000-75,250 |
| Hyundai |
14,100-82,400 |
| Tata Motors |
16,850-58,300 |
| Skoda |
35,000-90,000 |
| Ford |
25,300-31,100 |
| General Motors |
15,800-93,100 |
| Fiat |
17,500-22,000 |
| Honda |
35,800-98,000 |
| Toyota |
36,000-1,10,000 |
| * Prices are based on calculation of a rise of 5 per cent on models ranging from the lowest priced to the premium priced. Prices that were taken for this were all ex-showroom, Mumbai |
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| Shinzo Nakanishi, MD and CEO, Maruti Suzuki India (MSIL), said, “Input costs are definitely hurting us...we have yet not decided to hike car prices as we had just cut them a few weeks ago. But we are not saying we will not do it either.”
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| Nakanishi added that they had to see how much of the input cost pressure they could withstand through raising production efficiency and cutting frivolous costs. “After all, if we increase prices unnecessarily, then our competitors may get the benefits,” added Nakanishi.
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| Echoing the idea, an executive from US-based car maker General Motors said, “We are reviewing the situation and a decision will be reached soon.”
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| K K Swamy, the joint managing director of Bangalore-based Toyota Motors, said, “We are yet to take a call on price hike.” Toyota especially has the comfort of raising prices as it did not cut prices earlier as the excise duty cut did not affect the company.
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| To make matters worse, the situation will only aggravate in coming months as metal players expect a surge of around 15-65 per cent in prices of steel, iron, coking coal, copper to name a few.
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| Even though it is difficult to calculate the exact hike in vehicle prices, analysts say the hike can be around 5-8 per cent. More than 60 different models of cars and utility vehicles are manufactured in India by 15 companies.
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| Aniket Mhatre, research analyst, Prabhudas Lilladhar, said, “No auto maker will introduce the (price) hike suddenly. The hike may eventually be spread over a period of time with an intermediate increase of 2 per cent. A lot also depends on margin sustainability. If the demand goes up, the company has the comfort of increasing prices, although marginally.”
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| Some auto experts say car companies can improve their margins simply by reducing discounts they are giving to customers and there is no need to raise prices.
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| “The price rise weapon is used more to woo customers to bring forward their purchasing decisions and increasing volumes,” says a top executive of an auto company. |
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