The Telegraph
Since 1st March, 1999
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Car prices on the way up

New Delhi, March 21: If you’ve been dawdling over that car purchase — even after the post-budget price cuts — stop dithering and buy it now.

Carmakers are set to raise prices within the next fortnight. Maruti Udyog managing director Jagdish Khattar confirmed today in Chennai what has been hot speculation in the media that the country's largest automaker will raise prices very soon.

Khattar did not say by how much the car prices would rise but admitted that rising input costs — which he said had increased by 2 per cent over the past six months — could no longer be absorbed by the company.

Prices of steel, aluminium, rubber and diesel have all surged over several months and carmakers, who winched down prices by around 5 per cent after the excise cuts in the budget, are preparing to ratchet it up once again.

Khattar said it would be difficult to pass on the entire 2 per cent rise in input costs to the customer.

“The exact price hike has not been decided yet. With different models having different level of inputs, the price rise may differ across the models and variants,” said one Maruti Udyog official.

Other carmakers are preparing to follow suit though every one is being cagey about the extent of the price rise and its timing.

“We expect to raise our prices sometime around April. Our teams are still working on cost structures,” said Vinay K. Piparsania, Ford India’s vice-president (external affairs). “A hike in input costs is beyond the control of the industry, so we will have to re-work our costs after factoring in the increase in freight costs, steel prices as well as the introduction of value-added tax (VAT) regime.” The new VAT regime kicks in on April 1.

“Consumers can expect a minimum 1-2 per cent hike in car prices. Of course, this will not bring back prices to pre-budget levels. So, the consumers will still enjoy a price reduction vis-a-vis the levels that prevailed before March,” B. V. R. Subbu, president of Hyundai Motor India, told The Telegraph.

“We hope to complete the revision in prices by mid-April. Nonetheless, we have submitted a report to SIAM (Society of Indian Automobile Manufacturers) mentioning the impact of increased input costs on finished cars,” Subbu added.

“When the excise duty was reduced, we passed on the benefit to our consumers. Similarly, they will have to share our burden now that input costs have gone up,” Piparsania said.

Carmakers like General Motors India and Hindustan Motors refused to indicate whether they were also mulling immediate price increases though their officials admitted that the rise in input costs would affect their bottomlines in the long run.

P. Balandran of General Motors said, “As of now, we are not taking any decision to raise car prices. However, it is true that input costs on major items like steel, tyres and plastic have gone up.”

B. K. Chaturvedi, president and executive director of Hindustan Motors, said, “There is no denying that input costs have risen sharply. It is also true that we cannot continue to indefinitely absorb the burden. However, we have no immediate plans to raise prices.”

The car industry's squeamishness about effecting a price rise is understandable. Sales of cars have risen only in the second half of this fiscal and touched 6.18 lakh units in April-February 2002-03, with demand ignited by a slew of freebies including free insurance in the first year that were offered as bait to the reluctant car buyers.

A price rise now could scupper demand once again — sending the industry hurtling into the dog days of 2001-02 when demand was crimped by a sharp economic slowdown. No one wants to risk that just yet.

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