Rising input costs owing to steel and iron price hikes, and changing market conditions — such as elevated levels of dealer inventory — have automakers resorting to price hikes. Mahindra & Mahindra, Tata Motors, Toyota Kirloskar Motor and Renault India have announced price hikes from April onwards. Others are expected to follow suit soon.

Muted sentiment

“With retail sentiments already muted for both two-wheelers and passenger vehicles, price hikes in April 2019 are expected to dampen demand in H1 FY20,” Hetal Gandhi, Director, Crisil Research, told BusinessLine .

M&M announced on Thursday that the prices of its passenger and commercial vehicles will hiked by 0.5-2.7 per cent, resulting in an increase of ₹5,000-73,000 across models. Toyota Kirloskar Motor said it will increase the prices of some of its products. Renault announced a price increase on the KWID range by up to 3 per cent. Tata Motors said it will be increasing the prices of its passenger vehicles by up to ₹25,000.

“This year has seen record high commodity price increases. Further, there are regulatory requirements effective April 1 that have also led to cost increases,” said Rajan Wadhera, President - Automotive Sector, M&M.

All the four companies identified rising input costs as the reason for the price hike, ranging from 3 to 5 per cent. Two-wheeler OEMs have already increased prices by 1-2 per cent due to this, said Crisil Research’s Gandhi.

The input costs rise is mostly led by steel and iron, which account for 70-75 per cent of the average kerb weight of passenger cars and two-wheelers. Steel and iron prices have risen about 15 per cent and 10 per cent respectively in FY19, said Gandhi.

“Domestic prices followed global cues, which saw a sharp price hike led by healthy demand growth momentum in China and elevated iron ore prices (driven by mining disruption for Vale in South America). While prices shall remain elevated in the near term, they should soften in the medium term (especially in H2, 2019) led by softening global prices,” she added.

Greater inventory

According to the market interactions of Crisil Research, passenger vehicle dealer inventory stands at around 40 days against normal inventory of around 30 days. Owing to this, many OEMS are looking at production cuts.

“In H2 FY19, the passenger vehicle industry saw lower retail offtake on account of 6-8 per cent higher cost of ownership and lack of new model launches,” Gandhi said. The same applies for the two-wheeler industry as well, where dealer inventory stands at around 65 days against normal inventory of around 45 days.

However, this price hike may not imply dire consequences for the companies or the industry. In FY20, cars, utility vehicles and two-wheelers are pegged to grow by high single digits, according to Crisil Research. Better economic growth, muted inflation, new model launches, pre-buying of BS IV vehicles due to its lower cost as compared to BS VI vehicles and government support to agriculture and rural infrastructure will aid demand, said Gandhi.

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