Even as automobile sales have hit a record low, the country’s largest carmaker, Maruti Suzuki, on Tuesday announced a price hike across models from January. Others are likely to follow suit as they gear up to liquidate the stock ahead of rolling out new models in 2020.
Rising input cost, along with the transition of auto firms from BSIV to the more expensive BSVI models, has prompted the industry to hike prices, analysts pointed out. Besides Maruti, Mahindra & Mahindra and Toyota Kirloskar are already working on a price hike. Some others are watching the space before taking a call. This comes soon after another financially stressed industry — telecom —decided to hike tariffs.
According to a regulatory filing by Maruti on Tuesday, the cost of the company’s vehicles had been impacted adversely due to the increase in various input costs. “Hence, it has become imperative for the company to pass on some impact of the above additional cost to customers through a price increase across various models in January 2020,” the company, which saw its November sales dip 3.2 per cent from a year ago, told the BSE without indicating the extent of the hike.
Primary steel producers in the domestic market have raised product prices by 2.5 to 3 per cent for December to address margin compression and in anticipation of a demand pick-up. That has pushed up the cost for automakers.
The price hike announcement at this point may boost sales in the short-term if buyers advance their purchase, analysts believe.
Passenger vehicle sales in India have declined in 11 out of 12 months as poor economic growth has weighed in on buyers' sentiments. The GDP grew 4.5 per cent in the second quarter of FY20, marking the slowest expansion in six years. The index of eight core infrastructure industries contracted 5.8 per cent for October 2019, hitting a new low. Among the eight segments, the steel industry witnessed a 1.6 per cent fall in October, worse than a 1.5 per cent drop in September.
Led by festivals and steep discounts, passenger vehicle sales rose 0.28 per cent in October, over a year ago period. With the festive fervour drying up, sales slipped again in November. Soon after the Maruti announcement, a spokesperson at Mahindra and Mahindra said the company was “contemplating a hike in early January”.
A decision will be taken later this month.
The increasing transition cost along with the rising discounts have put pressure on the firms’ expenditure, thereby hitting their bottom line, Nikunj Sanghi, MD & Founder of JS 4Wheel Motor Private Limited, pointed out.
Toyota Kirloskar Motor is among the auto firms to have decided to bite the bullet.