Carmakers brace for a fresh round of price hikes from January 2022

Though an annual affair, chip crunch this time around is steering the price wheel

Amid persistent increase in prices of metals, plastic, and other input costs, carmakers are looking to hike prices from January. Although a price revision ahead of the new calendar year is an annual phenomenon, the announcement this time around comes against the backdrop of severe shortage of semiconductors that has been impacting production at automotive firms for over a year.

Leading the pack, car market leader Maruti Suzuki India (MSIL) on Thursday said it would revise prices of its models upwards from next month to offset increase in cost.

German luxury carmakers Mercedes-Benz India and Audi India also said they would hike prices of select models by up to 2 per cent and 3 per cent, respectively, from January 1, 2022.

Other manufacturers are also likely to follow suit.  

“Prices of commodities, raw material, and other input costs continue to rise. An appropriate price hike to at least partially offset this increase in cost seems inevitable in the near- to short-term,” said a spokesperson for Tata Motors.

Hyundai Motor India, too, is considering the move.

Unlike previous years, manufacturers have entered the last month of the calendar year with a very low inventory. Therefore, there is no pressure of liquidating the old calendar year stock. Inventory across sales channels of car companies is estimated to be around 120,000 units — much lower than 270,000-290,000 units seen in December.

The impending price increase from January will be the third one for MSIL in the current year, totalling to a cumulative 4.94 per cent. The company is yet to specify the increase, but the “hike will be substantial”, said Shashank Srivastava, senior executive director at the firm.

Led by an increase in input costs, material costs have risen sharply since May 2020. Steel has gone up from Rs 38 per kilo (kg) to Rs 70 per kg; copper from $5,300 to $10,400.

Precious metals like rhodium and platinum have also seen a jump. Rhodium, for instance, is up from Rs 16,000 per gram (gm) to Rs 63,000 per gm. Material costs account for close to 75 per cent of an automaker’s cost structure, said Srivastava.

Even in the current quarter, the inflationary trend persists. Steel prices have been pushed up further due to higher prices of coking coal and container shortage, he pointed out.

“During the first half of 2021-22, MSIL’s margin came below estimates, largely due to supply constraints and high input cost,” said Vinod Nair, head of research at Geojit Financial Services, in a statement.

It, therefore, becomes imperative for the company to pass on some impact to customers by way of car price increase, effective January 2022, he said. The brokerage expects demand to pick up gradually by the fourth quarter due to easing commodity costs and semiconductor shortage.

Balbir Singh Dhillon, head of Audi India, said the hike being taken in the wake of higher input costs will also ensure the brand’s premium price positioning and assure sustainable growth — both for the brand and its dealer partners. “We have ensured the impact is as minimal as possible,” he said.

Mercedes-Benz is offering price protection for select models such as A-Class, GLA, and E-Class until December 31.

The company, however, said it is committed to price protection to customers who have booked their cars and are waiting for more than four months for select models. It also announced on Thursday the delivery of the 1,000th car under its retail of the future business model which was first announced in June.