With the excise duty cuts announced in the budget last month making only a marginal impact on demand, car makers are once again looking at increasing prices to maintain their profitability, which they say is being hit by rising cost of imported components.
Major manufacturers such as Hyundai, Honda, Mahindra and Mahindra, Tata Motors and Renault are set to hike the prices of all their products this month, while market leader Maruti is also weighing its options. This round of price increase, the second in this year, of around 1-3% will more or less offset the benefit accruing from the duty cuts in February, and the move has left the government unimpressed.
“We are considering a price increase in April across models as the cost pressures are high on account of high rate of foreign exchange, increase in raw material costs and higher freight charges,” said Rakesh Srivastava, senior vice-president, sales and marketing, Hyundai Motor India Ltd.
In the interim budget on February 17, the government had reduced excise duties on small cars, scooters, motorcycles and commercial vehicles to 8% from 12%, on sports utility vehicles to 24% from 30%, on mid-size cars to 20% from 24% and on large cars to 24% from 27%. So far, these duty cuts have had negligible impact on demand, though they resulted in a reduction in prices of vehicles. Companies have indicated that full-year passenger vehicle sales are likely to see a second consecutive annual decline in the fiscal year that ended on Monday.
Mahindra, Tata, Maruti and Honda also said they will increase prices but did not specify the quantum. The current round of price increase however, is unlikely to go down well with the government.
“There is no rationale in increasing prices now,” said a senior official in the heavy industries ministry. “We fought hard with the finance ministry to reduce the excise duties. Now the industry wants to usurp it within just one month. Look at the balance sheet of any of these companies. They are not in the red. There is slowdown in demand but industry will lose sympathy if they raise prices.”