Carmakers book a date, time their price hike announcement to lure customers

There is an extraordinary eagerness among carmakers to announce a price hike that may be effective five weeks later, from the next calendar year. Mahindra & Mahindra announced a hike of up to Rs 40,000 on the Marazzo multi-purpose vehicle forty- five days in advance.

Luxury car maker BMW made announcement of a price hike forty days in advance. The company wants to effect a hike of up to four per cent from January. It has been customary for carmakers to hike price from January every year to pass on the cumulative cost push. The past announcements of this hike used to come in the second or even third week of December. But this year there is a greater urgency to clear stocks that have piled up at dealerships following a subdued festive season. A price hike announcement is expected to pull some customers to showrooms and add to sales volume.  

Japanese carmaker Toyota announced an intent of a price hike of up to four per cent on Tuesday, five weeks before the actual hike. “The hike announcement is more like a message to the customers who may want to take a call on having a better price deal before January. It is very difficult to absorb the high costs now as it will start reflecting on the financial health. Going by the past trend, any hike impacts demand by two to three per cent and the impact lasts for up to a quarter before normalising,” said N Raja, deputy managing director, Toyota Kirloskar Motor.

A double-digit appreciation in the dollar against the Rupee in spite of the recent recovery has put pressure on margins of manufacturers who import certain components. American carmaker Ford’s India unit is also said to be weighing a hike. Market leaders Maruti Suzuki and Hyundai who together control approximately two-third of domestic market have not yet firmed up a decision to hike price.

It is interesting that companies are talking of a price hike at a time when steep discounts are being offered on most of the vehicles and there is no waiting period in most cases. Dealers are struggling to clear the inventory. A statement from the Federation of Automobile Dealers Association last week said the average inventory level at car dealerships was fifty days before the start of the festive season and that has come down just marginally to 45 days post the festive season, ending with Diwali three weeks ago.

It is also unlikely that companies will be able to have a meaningful increase the realisation per unit even after a hike since discounts are expected to continue or even go up. An industry official said there is an average discount of six to seven per cent on most vehicles.

The last hike announced by the companies in July-August was completely offset by the steep discounts in the subsequent months. Since the January-March quarter of 2018, average discount per vehicle at country’s largest car maker Maruti Suzuki increased 34 per cent to Rs 18,700 as per the numbers available for the July-September quarter.

The result: average price realisation per unit has remained flat in spite of the two price increases- one in January and next in August. “Discounts are market driven. Everyone has to create excitement and in a bad market discounts do go up,” R S Kalsi, senior executive director (marketing and sales) at Maruti Suzuki said last week.

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•  Select carmakers announce price hike 5-6 weeks ahead of actual hike
• Hikes of up to 4 per cent announced
• Announcement aimed at bringing buyers back to showrooms
• Leading players, including Maruti Suzuki and Hyundai, yet to decide on increasing prices
• Price rise might be negated by steep discounts as sales slow down