Despite rise in input costs, car makers keep prices under check on fear of large inventories.
With the industry recording the sharpest monthly decline in car sales last month, the festive period notwithstanding, car making companies are holding back price rises, despite a rise in the prices of steel and other metals.
With most major festivals now over and no respite in inflation seen in the near term, the automotive industry fears being stuck with large inventories, following prolonged sluggishness in retail demand.
Several companies like General Motors, Maruti Suzuki, Hyundai Motor India, Honda Siel and Mahindra & Mahindra did not increase the prices of their products, despite a rise in commodity prices over the last few months.
P Balendran, vice-president, General Motors India, said, “There has been no softening in input prices. But despite this, we have not gone in for a price hike. The market has been very sluggish. The growth in (vehicle sales)in November-December-January would be lower than what the industry recorded in September-October.”
Usually, the festive period sees a flurry of discounts offered mostly on slow-moving car models to increase consumer excitement. However, with inventory piling up at the dealer’s end, discounts would be at their peak during the year-end, say market watchers.
Customers usually postpone purchases to the next year to gain from the change in the year of registration. While the date of registration is important, the year of manufacture of the car also comes in handy at the time of reselling the vehicle. Companies are thus eager to dispose of the excess inventory made in the current year.
A senior Tata Motors executive said, “Raw material (prices) have gone up over time, and even the prices of non-core raw material have increased. Because of the fact that in India, are having high inflation, there is continuous concern of cost of products going up. We try to offset that in some ways, like price rises. We raised prices in October, by less than one per cent, we are not looking at another increase.”
Despite a flurry of new launches, the domestic car industry saw sales of only 138,521 units last month, a fall of nearly 24 per cent, compared with 181,704 units in the year-ago period, according to the Society of Indian Automobile Manufacturers.
"We are not expecting any growth in the later part of the year, or at least till the Budget. Current buyers are mainly those buying vehicles for the first time, and have been planning to buy a car for a long time. Unless we see a turnaround in the economic health of the market, we would not see good growth", said Balendran.
Mahindra & Mahindra, India's biggest manufacturer of sports utility vehicles, raised prices in August, the third rise in eight months. The rise was in the range of 1.5-two per cent and was across all product categories.
Mahindra & Mahindra, which has so far bucked the industry trend, posting growth of nearly 32 per cent this financial year, with sales of 133,454 units, is also treading cautiously, as bank lending rates are already at new highs.
Toyota Kirloskar did not raise prices of its new products, Etios and Etios Liva, although the company raises the prices of other models like Innova, Corolla and Fortuner in the range of 1.5-2 per cent in October.
As prices of commodities like natural rubber softened from their peaks, tyre-making companies expect a better third quarter. Ceat, India’s fourth-largest tyre manufacturer by tonnage, said raw material prices in the last quarter were lower by two per cent, compared to the previous quarter.
Anant Goenka, deputy managing director, Ceat, said, “Natural rubber prices have come down considerably after fresh supplies into the international market. The supply is generally higher this time of the year.”
