5.11.14

Motown snippets


After a gap of nine months, automakers are contemplating increasing prices to offset higher raw material and logistics costs.But they are cautious too, after the pickup in sales that they witnessed earlier this year fizzled out in the all-important festival season. Sharper hikes are likely to be limited to popular models, and some manufacturers may stay away from changing prices, say industry executives.
The Indian unit of Hyundai Motor said it would increase prices, and an announcement is likely over next few days. Maruti Suzuki and BMW are contemplating increasing prices, and decisions are expected as early as this month. In the two-wheeler segment, which had a bumper festival season unlike car makers, market No. 1 Hero MotoCorp and closest rival Honda Motorcycle & Scooter India have already increased prices of motorcycles and scooters. Others are expected to follow the leaders.
Automakers have evaded across-the-board price hikes since February, when the government cut excise duty by 4-6% to stimulate demand and help put the industry back on track after two years of falling sales. Companies passed on the benefit to customers and that, along with an improvement in consumer sentiment following signs of a pickup in the economy, heavy discounts and an array of new models, helped auto sales return to the positive territory in May. Though the festival months of September and October turned out to be disappointing, overall car sales since the fiscal year began in April have increased about 4.5% from a year earlier.
Manufacturers say there is some room to increase prices now, especially for the in demand models, to recover huge investments on new cars and improve profitability.
Companies are citing rising input costs, especially on steel that has shown an upward trend in the international markets, for considering price hikes. Hyundai, Maruti and Honda source auto-grade steel from markets like South Korea and Japan. Several automakers are also importing parts. Fluctuating international currencies, especially the Japanese yen and Korean won, have been hurting, too.
Another drag on profitability is high discounts and freebies that automakers have been offering to entice unwilling customers. Maruti’s profit margin, for instance, fell 0.2 percentage point in the July-September period because of higher discount – on average, the local unit of Japan’s Suzuki Motor offered discounts of Rs.21,000 on every car sold in the local market, compared with Rs.17,000 a year earlier. Some automakers are also waiting for the government’s decision on the excise duty benefits, which have been extended once and will now expire at the end of December, to make a call.



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