Automakers May Announce Another Price Hike Soon, Auto News, ET Auto
New Delhi:India has seen the most frequent car price hikes this year, attributed to alleged increases in input costs. Still, most automakers believe that the cost impact has not been fully passed on and they may resort to yet another price hike very soon. Most businesses are gearing up for the fourth price hike of the year.
“We have not been able to fully pass the cost pressure on to customers. There is a lag in the price increase. The way things are going, we should expect more price increases in the future, ”said Rajeev Chaba, President and CEO of MG Motor India, at the ETAuto 2021 Virtual Connected Vehicle Summit. According to sources, the price increase could apply from the first week of January and it is the tradition.
The current supply chain crisis will force the industry to shift to a new group of strategies that will include creating an inventory model for some components and just-in-time for a few others.
“This will certainly have an impact on the company’s cash flow and production costs. But we all know there is a reality and a market sensitivity to the magnitude of the price hike, ”said Veejay Nakra, CEO of Automotive, Mahindra & Mahindra.
Vinod Aggarwal, managing director and CEO of Volvo Eicher Commercial Vehicle, said the company believes that if there is inflation, it should be passed on to higher prices. But this equation has totally disappeared. Now there is no longer a link between the increase in costs and the increase in prices. “Of course, it is necessary to increase the prices, but what we can win is not in our hands,” he added.
Justifying the impending price hike, Nakara pointed out that there had been significant investment from the industry when it switched to BS-VI and now investing to meet BS-VI standards.2 or the new CAFE standards. According to him, the industry bears a lot of costs and the industry level is lower than it was in 2019 for passenger vehicles, and for commercial vehicles and two-wheelers in 2015-16.
India first adopted CAFE standards on April 1, 2017. In Phase 1 (2017-2022), CAFE standards require companies’ average CO2 emissions to be below 130g / km by 2022. Phase II of the CAFE standards will be implemented from April 2022 – it aims to reduce CO2 emissions to 113g / km and could be further boosted to 108 or 104g / km.
“Manufacturers frequently raise prices and still have not been able to fully pass the pressure on to costs,” he added.
Automakers fear that headline inflation and rising fuel prices make it impossible to pass on the full cost implications.
Besides the cost of the technology, automakers are blaming raw material prices for soaring costs. Shashank Srivastava, Senior Executive Director of Sales and Marketing at Maruti Suzuki India, said: “We did not pass the increased costs on to consumers because we did not want to jeopardize the recovery in sales after the recovery, and we also hoped that the hardware costs will soften. Easing did not happen and commodity prices were stubbornly high. “
Maruti Suzuki has announced three price increases so far in 2021, in January, June and September.
“They haven’t covered the increase in costs and we’re hoping that there will be some softening in commodity prices. But profitability will certainly be under pressure. We are therefore monitoring the situation closely and will decide accordingly. We are walking the fine line between the top line and the bottom line, ”Shashank said.
Consolidated profit of Maruti Suzuki India fell 65.7% to INR 486.9 crore in the second quarter of fiscal 22, from INR 1,419.6 crore in the corresponding quarter of the previous year.
There has been a sharp increase in the prices of raw materials like steel, copper, precious metals, aluminum, etc. For example, steel prices went from INR 38 per kg in March 2020 to around INR 70 a few months ago and copper from $ 5,200 / tonne to $ 10,300 / tonne. Rhodium increased more than 3 times during this period. Material costs are around 75-80% of OEM vehicle costs, which obviously had an impact on profitability.
According to Tarun Garg, director of Hyundai Motor India (sales, marketing, service), the auto industry is experiencing strong headwinds due to rising costs of materials and other inputs.
“There is also a global supply and supply constraint for electronic components. Hyundai Motor India is committed to offering the best value for money to its customers while absorbing the impacts of inflation as well as possible. However, a price hike could become inevitable if challenges on this front persist. For now, we are monitoring the situation closely and will make a decision on the price at the appropriate time, ”he said.
Price hikes could become inevitable if challenges on this front persistTarun Garg, Director of Hyundai Motor India (sales, marketing, service)
“The interesting part is that there are traders that are trading in tokens and we are dealing with them and we are paying premium multiples and we are trying to find every possible way to deal with the situation.” Rajeev Chaba concluded.
(The ETAuto Connected Vehicles Summit 2021 is supported by Varroc Excellence, Tata Communications, Siemens and Hexagon.)