Blame new designs, in-demand models and costlier inputs

If you had been thinking of buying or changing your car three years ago but had put off the decision, the delay is going to cost you.

Prices of automobiles have shot up over the last four-five years, some by as much as 18 per cent.

For example, Swift (LXI), one of Maruti’s best selling cars, which was priced at Rs 3.99 lakh (ex-showroom, New Delhi) in 2009-10, now sells at Rs 4.58 lakh.

The reason for this 15 per cent, or Rs 59,000 increase in price, can partly be attributed to costlier inputs and factors, such as the new engine, better quality interiors and airbags.

While carmakers say pricing decisions are broadly based on the cost of inputs, industry analysts and veterans say other factors, including the demand for a certain model or variant or the degree of competition in a segment, also play a role.

For instance, Maruti’s Swift had no competitor until recently, and therefore, it could play up the margins as well as pricing, say analysts.

But now, the company may have to change that strategy because of competition from Toyota Etios Liva, Hyundai Grand i10 and General Motors’ Sail.

Others are also planning to come up with models similar to the Swift.

“There are many reasons for price inflation from new designs and engines to new regulations and high material costs,” says Mayank Pareek, Chief Operating Officer, Sales and Marketing, at Maruti Suzuki.

However, the company also says entry-level cars are highly sensitive to price changes.

It therefore makes business sense to avoid price increases for such models as far as possible. “From the customer’s perspective, we drive value into our vehicles by improved fuel efficiency and lower cost of ownership,” said a company spokesperson.

Of course, popularity helps. For instance, the price of the Hyundai Santro has gone up 15 per cent (from Rs 2.64 lakh to Rs 3.04 lakh) between 2009 and 2013.

That means the price of the Santro has gone up by Rs 10,000 each year over the past four years.

Does this mean that a company can make more on best-selling models? Not necessarily. “Price hikes are mainly on account of the increase in cost of raw materials, higher freight and currency fluctuations. Technology upgradation and safety standards need additional investments and affect the price of the vehicle,” says Rakesh Srivastava, Senior Vice-President, Marketing and Sales, Hyundai Motor India.

Interestingly, Tata Motors’ Indigo and Indica Vista’s prices have risen the most (see chart).

While the Indigo eCS GLS was priced at Rs 4.07 lakh in 2009, today, the same car retails at Rs 4.77 lakh (all ex-showroom, New Delhi).

Similarly, the Indica Vista LS (diesel), which sold at Rs 4.4 lakh in 2009, is now priced at Rs 5.23 lakh (up 18.16 per cent).

Many analysts say this may be because of the demand in the commercial (taxi) segment, which is less price sensitive. Also, as the company’s sales have been down, it has been trying to improve margins on its popular models, they add.

However, not companies cannot raiseprices every time because of because of fluctuations in raw material cost.

Most companies have to go through low-margin phases, especially when economic conditions are not rosy.

> ronendrasingh.s@thehindu.co.in

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